You might think this is slightly harsh but an analysis of Yahoo by the Wall Street Journal suggests that underneath the hood, after we’ve accounted for the Alibaba stake, the company is more like Gannett than Google. And there is a good deal of truth to the point they’re making too:
Using this assumption, if Yahoo sold the remaining 60% of its stake at that price, its total after-tax proceeds could be $20.3 billion, or about $20 a share. Yahoo’s 35% stake in Yahoo Japan adds roughly another $7 a share after tax.
Taking that $27 and net cash of $3.11 a share on Yahoo’s books at the end of the third quarter off the current share price leaves $10.96 a share. That implies a $11.1 billion valuation for Yahoo’s core business, or 7.1 times 2014 Ebitda—pricey relative to analyst models. And that likely understates the multiple, since Alibaba’s high-margin royalty payments would need to be factored out of Yahoo’s Ebitda.
The point being that Yahoo should perhaps be valued more as a print media asset than a whizzy high tech company. Implying that the valuation should be around 4 to 6 times Ebitda, which is what makes that 7.1 times look high. It’s entirely true that Yahoo gets traffic: several months last year it was the number one destination, beating out Google’s traffic figures for example. But it is rather a media business than a tech one.
What’s more Marissa Mayer’s declared business plan is to be more of a media player, not less of one. Things like the purchase of Tumblr are all pointing in that direction as well. Gain eyeballs and show them advertising and gain those eyeballs by serving up content that people want to read. There’s nothing wrong with it as a business plan, as a strategy, it’s just that it’s not one that is likely to lead to fast growth. Thus it seems reasonable, as the WSJ says, to assign it a low multiple as with other media properties that aren’t going to display outsized growth.
Still at least the WSJ did compare Yahoo to Gannett and not to, say, one of the newspaper companies that has already gone bust.