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.
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