The company formerly known as Yahoo! just published its first annual report under the new Altaba (AABA +0.00%) moniker. As a reminder, all of Yahoo!'s actual operations now belong under the Verizon (VZ 1.78%) umbrella, leaving Altaba to manage a portfolio of investments and intellectual property rights that Verizon didn't want to include in its $4.5 billion buyout offer.
Chiefly, Altaba owns 14.7% of China-based e-commerce giant Alibaba (BABA +3.13%) and a 35% stake in former subsidiary Yahoo Japan, an online search and marketing service in the Land of the Rising Sun. How have these core investments treated Altaba since the third-quarter update?
Let's have a look.
Image source: Getty Images.
By the numbers
|
Investment |
Fair Value as of 12/31/17 |
Fair Value as of 9/30/17 |
Change |
|---|---|---|---|
|
Alibaba |
$66.1 billion |
$66.2 billion |
(0.2%) |
|
Yahoo Japan |
$9.3 billion |
$9.6 billion |
(3.1%) |
|
Total Altaba Investments |
$81.1 billion |
$84.8 billion |
(4.4%) |
Data source: Altaba SEC filings.
What the numbers mean
Seventy-eight percent of Altaba's total investment portfolio consists of Alibaba shares. Alibaba's stock has gained 88% since Altaba was formed, and Altaba shares followed along with a 71% gain. Over the same period, Yahoo Japan offered a 9% return and the S&P 500 market barometer gained 17%.
Alibaba shares actually fell a bit during the fourth calendar quarter of 2017, but came roaring back with a fantastic earnings report in January. Altaba followed suit, of course, since its Alibaba holdings now are worth $74.5 billion.
Beyond the two flagship holdings, Altaba holds $2.8 billion of corporate bonds, $1 billion in certificates of deposit, and another $1.4 billion in an assortment of smaller investments. The Excalibur IP operation, which holds the licensing rights to Yahoo!'s portfolio of technology patents, did not move over to Verizon and accounts for $665 million of Altaba's asset value today.
The company has been reshaping this part of its portfolio. The bond balance is down from $5.5 billion at the end of September, Altaba cashed in $600 million of its certificates of deposit over the last three months, and other investments have grown from $1.2 billion. So far, the company has neither bought nor sold a single share of Alibaba or Yahoo Japan in the Altaba era.
Other moves
The funds Altaba raised from liquidating some bonds and cash equivalents were used to retire some of the company's own shares. Altaba exhausted its $5 billion buyback policy during the fourth quarter, having retired 48.4 million shares in that period alone and 73.9 million shares since the program was announced in July 2017. As a result, Altaba's share count was reduced by 8% in the second half of 2017. The company has not announced a new buyback program to replace the completed one.
Altaba shares are trading roughly 26% below the combined value of its investment assets, a narrower spread than the 30% discount seen in recent reports. As fellow Fool Frank DiPietro explains, that's due to the tax costs involved in moving those international funds back to American soil. Last year's tax reform package included some big changes to the taxation treatment of foreign profits, which includes nearly everything in Altaba's portfolio. The company recorded a $6.4 billion noncash benefit from these tax changes, which explains the narrowing of the foreign taxation discount.
