What Would Yahoo! Do With $11 Billion?

By Rick Aristotle Munarriz | More Articles
September 15, 2010 | Comments (4)

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Is Yahoo! (Nasdaq: YHOO ) ready to crack open its Asian piggy bank?

Susquehanna analyst Marianne Wolk is suggesting that the meandering online portal could sell its stake in privately held Alibaba Group -- the Chinese juggernaut behind the Alibaba.com B2B exchange and the consumer-oriented Taobao -- for as much as $11 billion.

Yahoo! CEO Carol Bartz is shooting down the chatter this morning, but you know it's going to gain some serious traction. Yahoo! has failed to gets its share price anywhere near what Microsoft (Nasdaq: MSFT ) was willing to pay for it in its failed buyout bid, so you can be sure that investors will be drooling over any nugget that hints at creating shareholder value.

And $11 billion is a lot of money, especially for a company currently fetching a mere $16 billion in enterprise value. A chunky one-time distribution to shareholders could be substantial. Yahoo! could also deploy the after-tax proceeds into the mother of all shopping sprees, with more than enough money left over for an aggressive share repurchase and perhaps initiating a quarterly dividend.

Why isn't Yahoo! paying a dividend these days, anyway? Isn't that the fate of slow-cooking tech giants in Mr. Market's Crock-Pot? Even Cisco Systems (Nasdaq: CSCO ) announced it would be initiating payouts next year. If Yahoo! is going to settle for a pittance in interest income on its idle cash, and its near-term growth prospects aren't all that tantalizing, why not reach out to the income investors?

Then again, what if Bartz is right in holding on? Yahoo! paid roughly $1 billion for a 39% stake in Alibaba Group. The dot-com traffic magnet hasn't been able to generate that kind of return on any of its stateside endeavors, so why cash out on one of the few things that it's doing right?

Yahoo!'s Asian investments have always been its strong suit. It teamed up with SoftBank on Yahoo! Japan, one of the few geographical turfs where the Yahoo! brand managed to challenge Google (Nasdaq: GOOG ) . It also owned a 10% stake in South Korea's Gmarket, before eBay (Nasdaq: EBAY ) swallowed the marketplace whole.

I like Bartz's thinking here. Google sold off its stake in Baidu (Nasdaq: BIDU ) too soon. It dumped its shares of China's leading search engine, missing out on the 10-bagger that Yahoo! may be sitting on with Alibaba. Vodafone's (NYSE: VOD ) decision to dump its winning stake in China Mobile (NYSE: CHL ) will be another regrettable decision -- in time.

Yahoo! already has billions in the bank. Why pad its coffers, when it will only make desperate shareholders expect rapid deployment of the greenery? Holding on to Alibaba is the right call -- at least until a meaty acquisition comes around that forces it to raise some serious dough.

Should Yahoo! sell its Asian investments? Share your thoughts in the comment box below.

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Google and Microsoft are Motley Fool Inside Value recommendations. Baidu and Google are Motley Fool Rule Breakers selections. The Fool has written calls (bull call spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of China Mobile, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz wonders if it's time for Yahoo! to shed the exclamation point. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Report this Comment On September 15, 2010, at 5:07 PM, Quantemonics1 wrote:

Speaking as a large shareholder, and representing many others, I would like to cash out the Alibaba stake now.
I cannot speak for Soros and Ichan, who are other large Yahoo! owners, but as GOOG found out, free speech issues and nationalization fears could greatly REDUCE the value of Alibaba as a U.S./China trade war is close to erupting.
We are talking about more like $8-9 billion aftertaxes, in my estimation, or about 1/2 the market cap of Yahoo! shares currently.
Without doubt YHOO is the most misunderstood and undervalued MEDIA company out there. After exiting the search capital expenditures (leaving GOOG and Microsoft to duke it out), YHOO is now generating a good $1.2-$1.5 billion yearly in free cash flow for shareholders. Given the super-high profit margins and brand name of its business worldwide, YHOO is now THE world's largest content provider and effective new-age newspaper company.
YHOO could nearly corner the content market and purchase literally hundreds of smaller European and N.American providers with $9 billion in cash, and solidify its unique, globally leading click-ad space.
Given new investment in areas of the world it can better "control," increasing synergy and size of its low cost operations, YHOO is set to suprass even GOOG by the end of 2011 in terms Net Profit Margin on Sales, with smart redeployment of the Alibaba capital.
I am all for selling Alibaba now at a rich valuation, back to Chinese investors.
Report this Comment On September 15, 2010, at 5:08 PM, Quantemonics1 wrote:

By the way, I bought a slug of new shares today under $14 on the "potential" news.
Report this Comment On September 15, 2010, at 5:11 PM, Acesnyper wrote:

Because it needs to be said.
Hookers and Blow.
Report this Comment On September 15, 2010, at 6:17 PM, plange01 wrote:

yahoo would throw the 11 billion in the same garbage can the rest of the company is in...yahoo has been quietly selling its assets as it prepares to close itself down.....

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