Yahoo! Inc. (NASDAQ: YHOO) bought 40% stakes in Alibaba in 2005 for $1. Alibaba IPO prospectus could bring in a lot for Yahoo! Inc. (NASDAQ: YHOO) as they must sell one third of their current stakes through IPO. Will this benefit Yahoo! Inc. (NASDAQ: YHOO) Share value or not?
Gene Munster, Senior Analyst at Piper Jaffray Companies (NYSE:PJC), talked on CNBC’s “Halftime Report” and he shared his views on how Yahoo! Inc. (NASDAQ: YHOO) could possibly benefit from this.
Munster discussed what investors feel about the proper comp. He said that some investors think it is 5 cents but most of the investors think 10 cents is the proper comp. The reason is with 10 cents, even after discounts the investors get valuation much higher than the Street’s general thinking. Muster said that investors must own Yahoo! Inc. (NASDAQ: YHOO) shares.
“The bottom line: Obviously, Alibaba is nothing new to the Yahoo story, but we think as the IPO gets progressively closer, investors are going to put more weight in that 10 cents comp, which I can get into, but that’s going to yield a much higher valuation, and therefore you should own Yahoo”, Munster said.
Even though Yahoo! Inc. (NASDAQ: YHOO) gets flush of money from Alibaba IPO, there is a fear that Yahoo! Inc. (NASDAQ: YHOO) is going to do something stupid with that money. Yahoo! Inc. (NASDAQ: YHOO) traditionally has been a company which do lot of small acquisitions and with this Alibaba IPO cash inflow, no one has any idea what they might do.
Munster feels that this is a potential risk, but with the IPO and Alibaba’s momentum, stocks are going to rise. Muster also said that in six months to one year window, the risk outlined is very valid, but that is not going to impact the stocks.
“We think that you wait until the IPO, wait until you print one quarter, and all the excitement kind of sets talking about much higher valuation, and that’s the point we trade out of it”
Josh Brown, the CEO of Ritholtz Wealth Management, thinks just the opposite, though. He pointed out two factors to justify his stand on Yahoo! Inc. (NASDAQ: YHOO) shares. He said that firstly it required specific timing to know if the peak really comes before or after the deal. Secondly, he said that if investors don’t like the underlying company they can very well buy the Alibaba shares when they come public.
“The whole thing is contrived. Yahoo has not created value in a very long time. Revenues are going down. The core business – it’s not terrible, it’s just not great”. Brown added