Yahoo is expected to report earnings for its Q2:16 quarter after the close of trading Monday. The Street expects the company to report earnings of $0.10/share on revenues of $1.08 billion for the June quarter. For the current quarter ending in September, Street consensus is for earnings of $0.14 per share on revenues of $1.1 billion.
Most importantly, the bidding process for the sale of core Yahoo is also expected to end tomorrow and hopefully, Yahoo provides an update on the goings-on along with the financials. The bidding process for the sale of core Yahoo, which include Yahoo Finance, Yahoo Mail, Yahoo News, Yahoo real estate holdings, Yahoo patents among other properties has been dragging on since March this past year. Chatter about the bids that have come in has ranged from anywhere from $3 billion to $6 billion although what those offers entail is far from clear.
Bidders involved are said to be Verizon,
Whatever the sale price of core Yahoo ends up being, it's a pittance compared to the value of Yahoo's investments in
Selling those two Asian investments come with its own plethora of legal and tax ramifications for Yahoo shareholders and as a result, Yahoo's current share price does not accurately reflect its value in full, mostly due to those unknown factors.
Maybe with all the above issues, Yahoo management should just go talk to Jack Ma, founder of Alibaba and ask him to consider buying out the company.
It is no secret that Alibaba wants to expand its presence in North America and a relatively easy way for the company to do so would be for Alibaba buying Yahoo lock, stock and barrel. In essence, Alibaba would be buying back its own stock from Yahoo which would be a form of a huge buyback for the former. Alibaba would also get Yahoo's stake in Yahoo Japan, which has SoftBank as the biggest shareholder and all of Yahoo's various internet properties, real estate and patents.
Alibaba already has a relationship with SoftBank, with the latter owning a large piece of Alibaba. Buying Yahoo's stake in Yahoo Japan would give Alibaba an investment in one of SoftBank's majority owned investments which in turn could further strengthen the ties between the two Asian giants.
I would have also thought that if Alibaba were not interested in buying Yahoo outright, maybe SoftBank should, but given SoftBank's off-loading of its own investments in the last couple months, maybe SoftBank does not have the financial leverage at the moment to take out Yahoo in its entirety.
If Alibaba and Yahoo were to come to terms on a sale of the latter to the former, it would eliminate all sorts of headaches for Yahoo shareholders. Alibaba would pay a certain sum for Yahoo core properties, Yahoo real estate, Yahoo patents, Yahoo's 15% investment in Alibaba itself and Yahoo's 36% or so investment in Yahoo Japan. Alibaba could do an all-cash deal or maybe a cash plus stock deal and end up gaining a strong foothold into North America and thereby killing two birds, maybe even three with one stone.
Gone would be the complicated tax and legal ramifications of Yahoo finding ways to dispose of the investments in Alibaba and Yahoo Japan. In one fell swoop, all parties could walk away pretty happy including Alibaba, SoftBank and, most of all, long suffering shareholders in Yahoo.
What does Alibaba get in return?
Most importantly, Alibaba gets to buy back 15% or so of its own shares in one single transaction thereby giving a significant boost to its own earnings per share as a result of reduced shares outstanding. Secondly, Alibaba gets almost a billion monthly users across the world to transition over and cross-sell to its various properties. Yes, there might be some overlap in users but Alibaba can adjust the price of core Yahoo accordingly.
Most of all, Marissa Mayer can make her swan song a good one in addition to walking away close to a centimillionaire in about 4 years. Not a bad haul, no?
What do you think?
This time around Yahoo's results are not as important as a detailed discussion on what has been going on with the bidding process at Yahoo and what the company's plans are for the stakes in Alibaba and Yahoo Japan. If management foolishly decides to further stall on a detailed discussion, look for shares to fall no matter how good the numbers might be for the June quarter.
(Long yhoo, long and short calls)
