Thursday, April 14, 2011

Yahoo! Needs New Leadership ... Again

By Eric Jackson
RealMoney Contributor

4/14/2011 1:45 PM EDT
Click here for more stories by Eric Jackson

Many investors have either totally forgotten about Yahoo! (YHOO - commentary - Trade Now) or think that the only play is to wait on a turnaround of its historical business.

I have a long position in Yahoo!, but it has nothing to do with its "core" business. Although I wish the company well, and it seems that Ross Levinsohn and Black Irving seem to be doing a better job overseeing that business than anyone else probably for the past decade, the potential for this business is dwarfed by the potential for Yahoo!'s 40% stakes in Taobao and Alipay.

Kara Swisher of All Things Digital is right that the "core" business has an amazing brand with enviable traffic. It's not so much that I'm bearish on the chances of turning this around, it's just that I'm so super-bullish on Taobao and Alipay.

As I've said here before, Yahoo! is trading at about half of where it should be today based on some research I've done into how well Alipay and Taobao are doing. Yet that value is not being reflected in the Yahoo! stock price because they remain private -- so no one truly knows how well they are doing.

Yet it is undeniable that Taobao and Alipay are setting themselves up as a combination of the Amazon(AMZN - commentary - Trade Now), eBay (EBAY - commentary - Trade Now) and Paypal of China. And they're doing it at an even bigger scale than the American giants. Industry consultants estimate that Taobao has a 70%-85% market share of the e-commerce market in China. That's truly astounding.

And, every quarter that goes by, we seem to get another moon-shot Chinese IPO. A couple of weeks ago it was Qihoo 360 (QIHU - commentary - Trade Now). Last quarter, it was Youku (YOKU - commentary - Trade Now) and Dangdang (DANG - commentary - Trade Now). All these Chinese IPOs are minuscule compared to Taobao. Dangdang, for example, is estimated by consultants to have only 3% of the Chinese e-commerce market. And remember that Chinese e-commerce is expected to grow 5x by 2015. Taobao will see its large size grow even larger in the next few years -- and Yahoo! shareholders will be along for the ride.

So, what is the catalyst for people to recognize the value of Yahoo!? Obviously, an IPO of Taobao and/or Alipay would force transparency on their financials and force the market to reflect that value in Yahoo!'s shares. Yet, there is no sign of anything like that being imminent.


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