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Analysts Split over Yahoo's Stock Potential

Companies / Tech Stocks May 09, 2016 - 12:46 PM GMT

By: Nicholas_Kitonyi


Yahoo’s search engine may have lost its online dominance to Google, but many analysts say that shares of Yahoo are undervalued and contain potential for significant gains despite the current volatility.

The main drivers of this potential value come not so much from Yahoo’s search engine, but from divisions like Yahoo Finance, as well as its foreign subsidiaries and stakes in other large companies, mainly online marketplace Alibaba.

Some simple math suggests that the company may be worth much more than its current market capitalization, something that should be included in the equation of those looking to invest in Yahoo stock.

Yahoo’s market capitalization is $34.98 billion, yet the sum of its activities implies that the company’s value is actually $47.3 billion, according to figures from Bloomberg.

This value is based on adding up Yahoo’s cash of $6 billion with the $8.7 billion value of its Japanese subsidiary, and the $32.6 billion its Alibaba stake is worth. If you want to buy Yahoo (YHOO) stock, take into account, that based on this calculation, Yahoo shares should be trading at $56.29, and not $35.98, as they are today, some analysts say.

But the company’s shares have not reflected this, and instead have been on a volatile and, ultimately, downward ride since peaking at $51.75 on Nov. 10, 2014.  Even Yahoo’s chief executive, Marissa Mayor has sold large numbers of shares in recent years, and, as a result has been accused of sending employees and shareholders the wrong message.

Those looking to buy Yahoo stock cannot ignore this pessimism in the market, and reasons abound for the volatility of the shares.  Aside from the uncertainty about who will buy the company’s core business activities that are currently for sale, Yahoo’s earnings have also declined, with this year’s first-quarter revenue falling to $1.09 billion from $1.27 billion in the first quarter of 2015.

While many investment banks maintain a buy-rating, encouraging investors to buy Yahoo stock, some have recently downgraded their ratings to neutral or even advised investors to sell their holdings in the company amid this volatility. 

Among those who lowered ratings was Citigroup, which warned that a high-value sale of the company’s core business is not yet a sure-fire scenario, and pointed out that Yahoo has a history of not completing proposed and potential deals.

By Nicholas Kitonyi

Copyright © 2016 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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