Yahoo Considers Selling Its Internet Business

Yahoo! Inc.( NASDAQ:YHOO) is said to be considering the outright sale of its internet business, instead of spinning it off into a separate entity as put forward last month. ^[1] Such a move would be the latest effort by management to unlock the value for its internet business.  The market capitalization of Yahoo approximates the value of the sum of its cash and its equity holdings  in Alibaba and Yahoo! Japan, suggesting a negative valuation for the core business.  The company is under considerable pressure from investors to seek a remedy to this situation.

However, we still believe that selling the internet business might be a challenge as it is not as lucrative as it once was in the face of increasing competition from other content providers.

Click here to see our full analysis of Yahoo

Who Can Buy The Internet Assets?

Yahoo’s portfolio consists of some famous websites such as Yahoo! Finance, Yahoo! Sports, Yahoo! News and Yahoo! Mail. These websites have over 1 billion unique visitors with over 700 million users for its mobile apps. Considering the sizeable footprint in the Internet, Yahoo’s web properties can attract private equity players who are looking to pivot Yahoo’s content business into one that offers products for online video or placing ads on other websites programmatically.

It is also possible that Yahoo’s internet business, which consists of video (BrightRoll) and mobile (Flurry) programmatic platform, could attract the attention of a telecom giant such as AT&T as was the case with Verizon and AOL. AOL’s mobile and video advertising technology was the primary draw for Verizon, as it looked to capitalize on two of the biggest trends in the media and advertising industry.  First is the shift of media viewing time from traditional media to mobile devices.  And second is the move from manual digital ad purchases to programmatic buying. Additionally, Verizon Communication’s CEO,  Lowell McAdam, said at a technology conference in December that it can look into buying some of Yahoo’s properties as these would complement its AOL properties, which it bought for $4.4 billion last year. ^[2]

What Could Be The Value of Yahoo’s Internet Business?

Considering that Yahoo has invested over $2 billion on acquiring companies such as Tumblr ($1.1 billion), BrightRoll ($640 billion) and Flury etc, and  its properties have over a billion users, the estimated value of its properties due to search and display ads is close to $5.2 billion. Precedence dictates that an acquirer pays a premium for internet property that have sizeable userbase, as is the case with Yahoo. Therefore, we believe that if Yahoo were to sell all its properties, it could  generate over $6 billion from the proceeds, a 20% premium at the current valuation.

However, as the company has not yet released any official statement on the subject, the recent news is mostly a rumor. However, investors hope that the news is true and it was reflected in the stock price spike on Friday.

We currently have a $35.86 price estimate for Yahoo, which is 17% above the current market price.

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More Trefis Research

1. Yahoo to Reconsider Sale of Web Business Instead of Spinoff, January 8 2016 [↩]
2. Verizon could consider buying Yahoo’s internet business, December 8 2015 [↩]