The bigger Alibaba is, the smaller Yahoo becomes. The internet company's market value is approaching $40 billion, roughly twice what it was when Marissa Mayer was named chief executive about two years ago. Her problem is that Yahoo's remaining 16.3 per cent stake in the newly public Chinese e-commerce group accounts for most of that - and its holdings of Yahoo Japan and cash for the rest.
Alibaba's Initial Public Offering (IPO) last week was always going to help crystallise what investors thought of Yahoo's own search and advertising operations. So far, the answer seems to be not much.
Start with the US company's market capitalisation of $38 billion, knock off net cash at June 30, and its enterprise value is about $35 billion. At Monday's closing price, the Alibaba stake, even after assumed tax at 30 per cent on Yahoo's gain, is worth about $25 billion, or a whopping 72 per cent of the total.
That's not the end of Alibaba's significance. Yahoo sold shares in the IPO, reaping more than $8 billion of cash before tax, or some $5.8 billion net. That's 16 per cent of the company's enterprise value. Its other big Asian interest, about 35 per cent of Yahoo Japan, is worth another $5.7 billion or so, also after tax.
A quick sum shows these elements easily account for Yahoo's full enterprise value. Based on this analysis, there's no value at all in the in-house businesses that Mayer actually runs. If it turns out there's a clever way for Yahoo to pay less than 30 per cent tax when it offloads its Asian stakes, the result would show the company's existing operations in an even harsher light.
Yahoo's internet businesses are at best sluggishly growing also-rans compared with Google, where Mayer used to work. Its many mistakes before she arrived cost it the confidence of some shareholders. And its stock is no longer needed as a proxy for Alibaba.
In a way, these freshly clarified challenges make Mayer's job easier. It shouldn't take much to persuade shareholders to value Yahoo's own businesses at something more than zero.
