Yahoo Inc. (NASDAQ:YHOO)’s market cap is around $35 billion today and most of it is owed to the company’s stake in Alibaba which accounts for about three quarters of its total market cap. If we back out the value of Yahoo’s Alibaba stake, the market value for the rest of Yahoo comes down to $9 billion. Alibaba’s IPO has got a lot of attention already and people in the Silicon Valley are rating it at par with the Facebook IPO launched in 2012. Some even predict it doing better than the one launched by Facebook.
On the other hand, Twitter is a very fast growing company and its market cap is at 17.5 billion. This is twice as much as Yahoo! Inc. (NASDAQ:YHOO)’s market value ex Alibaba stake. Is Twitter Inc (NYSE:TWTR) really worth two Yahoos? We think Twitter Inc (NYSE:TWTR) is overpriced but we may be proven wrong over the long-term. However, it seems like Yahoo! Inc (NASDAQ:YHOO) is an undervalued stock compared to the rest of the tech stocks trading in the market.
Well Alibaba seems to be the best investment Yahoo has made in the last decade. It had invested $1 billion back in 2005 to get 40 % stake in the Chinese ecommerce giant. Things have changed in the last 9 years and today Alibaba is much bigger than Yahoo Inc. (NASDAQ:YHOO). The relationship has changed to an extent that Alibaba is now helping Yahoo to increase its share price from $ 17 to $ 34 (Dan Loeb played a role too). Yahoo’s revenue growth has been struggling over the past few years and the stock will probably be more volatile if it doesn’t use the money it raises from the IPO properly.
Yahoo is planning a lot of reforms and changes in its business and has rolled out a very good weather app already. However it has a mountain to climb if it needs to bring back the glory days.