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At current levels, shares of Yahoo! Inc. (NASDAQ: YHOO) imply a 30-35 percent discount to the underlying market values for the company’s stakes in Alibaba Group Holding Ltd (NYSE: BABA) and Yahoo Japan as well as a $2-$4 billion value for the company itself, Citi’s Mark May said in a report.
The analyst upgraded the rating for the company from Neutral to Buy, while raising the price target from $38 to $43.
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Upside To Shares
May noted six factors that create “a more compelling risk/reward” for Yahoo’s shares:
- Recent credible news reports and management commentary related to the auction process
- Citi’s valuation analysis, suggesting +15 percent upside potential
- Visible near-term catalysts
- Alibaba’s recent positive outlook
- Alibaba’s agreement to repurchase shares from Softbank
- Underperformance of Yahoo’s shares since the downgrade in rating
Updated Valuation
“Our updated valuation framework suggests a probability weighted price target of $43/share (15% upside), with an upside case of $46/share (+23%), and a downside case of $35/share (-5%),” May wrote. He enumerated the key elements of the thesis as:
- The Yahoo business is likely to be sold: All-in purchase price is expected to be at least $5 billion, with net proceeds of at least ~$4 billion.
- The current implied discount of 30-35 percent of Alibaba and Yahoo Japan stakes will decline to 25 percent in the worst case scenario and to 15 percent in the best case scenario, “as the conglomerate (aka complexity) discount abates.”
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.