Google and Facebook also buy a lot of companies that don't immediately produce revenue. Facebook spent ****ing $19 billion on Whatsapp and hasn't made a nickel from it yet and has no plans to. Google buys companies for 9+ figures all the time and doesn't even tell us what the hell they do with them, much less make money off of them. See:

http://techcrunch.com/2014/01/26/google-deepmind/

They bought that company for $500 million and it's a total mystery what they ever did in the first place or what they are doing now.

The only difference is Facebook and Google are controlled by their founders. They could throw a $2 billion toga party if they wanted to and there isn't **** shareholders could do about it. So people like Starboard and those who hate Marissa because she bought Tumblr don't even bother campaigning against those companies. But because Marissa has to answer to her board and could be fired, they attack her for it.

I didn't want to see her sell the BABA stake and then go shopping with it, but I'm willing to let her make reasonable 7, 8 and even 9 figure acquisitions with the money Yahoo has now. That's what you have to do in tech if you want to grow. They're not going to be able to produce new hit products in house. You have to buy that stuff. And you have to buy the talent that creates it.

Google and Facebook are both vulnerable to the right competitors. I don't believe that the type of talent that they are buying is worth anywhere near the prices they are willing to pay for it. There is a misconception that the programmer is the talent that is valuable with internet companies and it's not true. Programming talent for most things is actually a commodity today. What is never a commodity is someone with the talent to understand what people want and the judgement to filter through the things they don't want. That's the job of the CEO. A great CEO has vision no matter what company they are at.

If I ran YHOO the first thing I would do is evaluate every part of the company to develop a sound strategy. I cannot give an accurate answer on the best strategy for the company because I do not have access to enough information. The way I can tell that current management does not have the correct strategy is based on how people view the company. If management can't communicate their goals through actions that the shareholder's, analysts, and general public can understand and view as sound, then they aren't effective managers.

?!?

It has almost tripled over the past three years.

management is the epitome of "play bad, get there"

When the outfield wall is 20 feet from home plate then almost anyone can hit a triple. Management has squandered many opportunities to assure a home run. They are indecisive, uninspired, and extravagantly overpaid destroyers of shareholder value and opportunity.

Weird that the companies that have done a much better job haven't tripled up.

Almost TRIPLED over 3 years. That isn't almost being there three years ago. That is being extremely far from there.

Three years ago there weren't a lot of people saying that YHOO wasn't going to die a slow death.

The increase in the share price is all Alibaba and Yahoo Japan dude. Has absolutely nothing to do with management. Zero. Zilch.

In fact she slightly ****ed Yahoo over by selling some Alibaba prematurely. And she wasted obscene amounts of money with the sales dude she hired who proved to be a disaster.

If a mannequin was the CEO of the company instead of Marissa, the share price is probably at least $5 higher right now.

That the core hasn't died when it was fully expected to is an accomplishment. Don't you remember the whole "web portals are dead" thing?

That she cut De Castro as quickly as she did is pretty amazing. Most CEOs try a heck of a lot harder to hide their mistakes. I'll give you the .12/share that he cost during his tenure towards your $5.

Actually I doubt very much anybody in the world could hit a triple under those circumstances.

Disagree that programmers are commodities but agree with you that tech companies need a visionary CEO. I don't necessarily think Marrissa is yet but I don't think she isn't either. It's too soon to tell. She definitely has the ability to make bold, unpopular decisions. Which is one important characteristic of the visionary CEO. Which is to say there isn't a person alive who could come in and successfully turn around Yahoo and have you agree with every decision that they make. They're all going to look incompetent until their big ideas work.

The core is worth less than nothing to the market right now, dude. If she had closed the core business the stock would ****ing be worth more. Which is a travesty, but it's the reality.

Marissa hasn't done anything for the stock price long term. In the beginning she did but that goodwill is gone. She has a lot of haters these days.

I think that still controlling this many shares of BABA and spinning it off is more correct than many CEOs would have done in her shoes and that's the most important aspect of her job given the size of the position. Also, she is due some credit for not burning through a bunch of money on acquisitions when there was pressure to do something accretive even though people were clamping for different things.

Domer, as far as a discount for spinco goes, I think 10-15% is much more likely than 2.5%. There will still be illiquidity there and it doesn't solve the problem of what to do with the shares. Ideally BABA will eventually get into buybacks and just buy spincos discounted shares but that's a long long way off.

Huge BABA miss, you're now underwater even with the buy before the huge BABA runup. You going to unload some, or do you still think they're hugely undervalued? Interested in your opinion.

What's your thesis for why what is now a pure numbers game (no opinion is needed) is not being bought up by the market? Basically, everything has massively gone your way outside of the original thesis. You got the tax free spinoff. BABA ran up 40%, creating momentum and huge hype that fueled Yahoo's visibility. They even had a breakout earnings and some positive developments. And it still went nowhere near where you thought it would. You have to think after yesterday's action that the tax free spinoff was priced in.

Do you think the market is simply nuts? There are armies of analysts looking for exactly this opportunity. Do you think they're all missing it? Or do you think there's a possibility you might be misunderstanding the nature of this investment? Genuinely curious in what you think.

No way am I selling and will probably keep adding.

Right now BABA stake + Yahoo Japan stake is worth more than the current YHOO market cap. You get the cash, some of the Yahoo Japan stake and the profitable core business for free. That's absurd.

I can't explain the irrationality of the market on this one. If you have an explanation, I'd love to hear it.

BABA is now trading below its IPO price, how is that everything massively going my way? Obviously if BABA loses 15% of it's value in a week on back-to-back bad news, YHOO is going to suffer along with it.

It's interesting somebody as smart as you seem to think you are could also be such a results oriented monkey. You seem to think being in the black = right and being in the red = wrong. That's not how it works. Didn't you ever play poker?

What's the precedent to determine a discount? Liberty Media spun off TripAdvisor shares in a similar way, but there's a couple of variables there that don't map to what Yahoo is doing (voting rights & BuySeasons business).

10-15% seems wrong. It'd be real dumb to own BABA if you could get proxy BABA shares for a 10-15% discount. Also seems like another company would start gobbling up SpinCo if they could get BABA at a 10-15% discount.

Looking at it on a share basis is missing the point -- again, 90% of Yahoo''s value is equity that Marissa had nothing to do with (either in acquiring or managing). In fact, Marissa actually ditched some BABA at a huge discount to the eventual IPO -- and it was only until the eve of the IPO window that her tune changed.

As far as her COO blunder, look at core Yahoo. The company made $1b in revenue last year. The $100m DeCastro mistake represents 10% of 2014 net income. On a net income basis, that would be the equivalent of Apple making a $4 billion hiring mistake. Just a massive blunder. Oh and Marissa's compensation package? Another gigantic sink on the company.

If you're interested in the various blunders and missteps of Marissa, there's a new book about it that just came out that can walk you through it.

FYP

The capital gains tax liability will go into the spinco as part of the spinoff.

Efficient market trolls are out in force ITT and nobody can make a case for the present valuation. I don't know what clearer evidence anybody could ask for that this is a buy.

Watchutalkinaboutwillis?

Just doing some back-of-the-envelope math here.
BABA shares: $34B
Net cash: $7B
Yahoo Japan: $7B
Total: $48B
Yahoo market cap $42B

It seems that the market is pricing Yahoo's core at -$6B. But we have to consider the accrued capital gains tax on the BABA shares. Those get spun off into a separate spinco with no taxes due for current YHOO shareholders. But the accrued taxes stay with the spinco. If they were ever to liquidate, they'd have to pay 40% of the proceeds in taxes. The only way for spinco to return cash to investors is if BABA starts paying a dividend, or if BABA acquires it in a stock-for-stock acquisition. (If that happened it would happen at a discount as well) So the spinco will certainly trade at a discount. It won't be 0% and it won't be 40%, but within that range it's hard to say. My guess is around 15%.

Spinco discount (%)_____Yahoo core valuation
0______________________-$6B
10_____________________-$2.6B
20_____________________$1.2B
30_____________________$4.6B
40_____________________$8B

Overall it looks like YHOO is being undervalued here relative to net assets as well as cash flow (Operating cash flow is about $1B/year). But this is going to take a long time to play out. And the upside in percentage terms isn't that great. Let's say spinco trades at 15% discount and Yahoo core trades at 5x cash flow. You get a sum-of-parts valuation at $5B+$7B+$7B+$29B = $48B. And YHOO is now trading at a 12% discount to that.

That's not awful, but to realize that gain you have to expect to wait several months for the spinoff, then hope for a second liquidity event like a private equity bid for Yahoo core. Otherwise you have to worry about the market continuing to value Yahoo core for negative numbers.

Edit: also not sure about capital gains accrued for Yahoo Japan shares. Could cut off another $3B from total value.

Here, look, here's the smart way to play this. A LOT of funds are going to put on a paired trade of long YHOO short BABA. When the spinoff happens, they'll unwind those positions en masse, pushing BABA up and spinco down. So buy BABA on the eve of the spinoff, and short spinco in the few days following the spinoff.

I like it. A lot.

I saw a 12.5% discount and 15% discount applied in analyst research I read yesterday with sum of the parts valuations. 10-15% was just my "aggregate" estimation based on that. I assume those guys have a reason for the discount at that area and suppose it relates to how they manage the tax situation from there.