The unveiling of 'Altaba'

Adam Johnson

A WSJ article just reported that Yahoo Inc. will change its name to ‘Altaba Inc.’ after the completion of the $4.8 billion sale of its ‘core’ business to Verizon.

I was never a tech analyst (on the contrary, during my brief career in sell-side equity research I primarily covered electricity stocks – basically the complete opposite in terms of the fundamentals driving stock prices). But Yahoo is a story I have followed with great interest over the years. I still recall the day in 2012 when my Reuters screen popped up with the announcement that Marissa Mayer was taking the reins as CEO. At that time, I remembered Mayer from watching the CNBC documentary on Google. She was young. She was a relatively well-known public figure in Silicon Valley. The company had gone through a handful of CEOs in a couple of years and needed to shake things up. It was a very interesting story.

From the perspective of a fundamental business valuator, Yahoo has been an even more interesting story. In the fall of 2014, I was having a conversation on Yahoo with someone from BlackBerry. I recall him asking me, “What does Yahoo even do anymore?” (In retrospect, an ironic comment coming from someone at BlackBerry.)

I answered the question as best I could: “Well, I think it’s basically a holding company for Alibaba.” At that time, Alibaba hadn’t yet IPO’d, but from what I recall, the consensus was that most of the company’s value could be ascribed to its stake in Alibaba. Moreover, from what I then read, most analysts calculating a sum-of-the-parts valuation for Yahoo would impute a nil, or even negative value for Yahoo’s core advertising business after backing out Yahoo’s stake in Alibaba and Yahoo Japan.

Today’s announcement confirms what most of the world already knew back in the fall of 2014 (and earlier): Yahoo is, in essence, a holding company. [According to the WSJ, Evercore suggested that its ‘core’ business still only comprised 10% of its total market value as of December 2016.]

So set aside the comps or your fancy DCF model: assuming that the core business sale to Verizon is closed successfully (despite the compounding hacking concerns which could sour the deal), the valuation of Yahoo, or “Altaba” as it will now be known, should be a relatively straightforward exercise for investors, save for perhaps the issue of a holding company discount as compared to owning shares in BABA outright.