How Big Will Alibaba Group Become?

Meet Alibaba Group.  It's soon to become bigger than either Tencent or Baidu.  The biggest Chinese Internet company in the world.

Read the full post in Forbes

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Yahoo's Thompson `Still Too Vague,' Jackson Says

April 18 (Bloomberg) – Eric Jackson, president and founder of Ironfire Capital LLC, talks about Yahoo! Inc.'s first-quarter sales and company outlook. Revenue, excluding sales passed on to partner sites, rose 1 percent to $1.08 billion, Sunnyvale, California-based Yahoo said in a statement yesterday. Jackson speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)





[Long YHOO]

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If Facebook's Worth $100 Billion, Alibaba Group is Worth $57 Billion

Yahoo!'s stake in Alibaba Group alone is worth at least $23 billion judging by its growth compared to Facebook's.  Yet, Yahoo!'s total market cap is below $18 billion.

Read the full post in Forbes

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The Yahoo! Board Who Couldn't - Just Did

Don't listen to the Business Insider worry-warts: Cash-rich split, here we come. Good news for Yahoo! longs.

Read the full post on Forbes

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Next Yahoo! Question: What's the Core Worth?

Wednesday's news that Yahoo!'s (YHOO_) board is considering two separate "cash-rich splits" of their stakes in Alibaba Group and Yahoo! Japan is great news for Yahoo! longs.

Read the full post in TheStreet

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Jackson Says Blackstone, Bain in Lead for Yahoo

My appearance from earlier today on Bloomberg TV

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What Will Happen Next at Yahoo!

Here is one critical aspect of a Yahoo! cash-rich split that could unlock $20 billion in value that has been overlooked in all the coverage of Yahoo!

Read the full Forbes post

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How a "Cash-Rich Split" Could Take Yahoo! to $41/Share

The best option for Yahoo! shareholders is the company disposing of its Asian assets in a structure called a "cash-rich split."  Here's how it could work and turn Yahoo! into a $41/share stock.

Read the Forbes post

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Yahoo!: Digging Into So-Called Scoops

NEW YORK (TheStreet) -- Along with the broader market, Yahoo!(YHOO_) has been sacked this week.

It is now back to where it was trading in early October. Last week, Yahoo! was up more than 25% in the last month. It's now only up 13% for the last month. (Nasdaq is still up 7.6% for the last month.)

Don't get me wrong, I don't like that. It stinks, in fact.

However, let's take a step back from the ledge.

There were five things that were reported on with certainty last month that were not necessarily certain at all.

1. A couple of weeks ago, many media reports said that Jerry Yang told the AsiaD conference in Hong Kong that he wasn't going to sell the company. That was odd, as I was in the audience and don't recall him saying that at all. I forget his wording.

He might have said they weren't going to be a forced seller or they didn't have to sell if they didn't want to. He was saying they are playing from a strong hand. Maybe it was a bluff. Later on in the discussion, he said very clearly that they (the board) were going to do what was right for the shareholders. I took that to mean that -- just as everyone suspects -- this thing is still in the middle of a sales process.

2. A Wall Street Journal article a couple of weeks ago quoted some private equity bidders as saying they thought Yahoo! was only worth $16 to $18 a share in a buyout and was already over-priced at $15 as the stock was at $11 in August. Really? I think Apple(AAPL_) has a fair value of $25 a share. It's all hype and I'd really rather buy it at that price than $400.

3. A Bloomberg report on Friday night interrupted an otherwise pleasant dinner I was having. It quoted -- in its "scoop" - "5 unnamed sources" who said that Yahoo! was going to separate their Asian assets in a tax-free manner that would lead to a stock buyback or a dividend.

Read full post in TheStreet

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2 Big Misconceptions About Yahoo!

An update from Eric Jackson: The Wall Street Journal reported a "scoop" overnight that Yahoo! could potentially save billions on disposing of its Asian assets through something called a "cash-rich split." I first reported on this structure for TheStreet six weeks ago, as it had been actively pushed as a viable option by shareholders (including me) to the intransigent board since the summer.


Read the full post in TheStreet here.

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Thoughts on Yahoo! Buyers and Why Mike Lazaridis Needs to Be Put In a Room

My appearance on Bloomberg West last night

See the video here

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Someone Should Just Go Ahead and Buy Yahoo!

What Jerry Yang's interest in Yahoo! really means.

Read the full post in TheStreet

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Caught in the Chinese Web

By Eric Jackson10/04/11 - 07:45 AM EDT
NEW YORK (TheStreet) -- A few months ago Facebook was rumored to be close to a deal with Baidu (BIDU_) about setting up a joint venture.

At the time, I said I thought that it was a smart move on the part of Facebook (although the rumors of the day then said it was something that Mark Zuckerberg was insisting on over objections by Sheryl Sandberg). I remember a friend of mine, Bill Bishop, an American venture investor based in Beijing, was very skeptical at the time of such a deal working out. Bill pointed out then on his blog how many American Internet JVs had driven on the rocks of China over the last 5 years.

I was reminded of Bill's thoughts last week when I watched an interview of Qunar co-founder, Fritz Demopoulos, who recently sold his Chinese travel business to Baidu.

Follow @StockAction on Twitter for market observations and investing ideas

Fritz is a German, who got his MBA in the U.S., and then promptly went to China. He started two companies over there in the last 10 years. He has a uniqueperspective on the country and what it takes to succeed there.

Fritz says flat out in the interview that he doesn't think that any U.S. internet company will ever be successful in China through a JV.

His reasoning was pretty simple. Even six years ago, China's infrastructure was pretty immature vs. the U.S. Remember that was the time when Jack Ma sold 40% of his company for $1 billion to Yahoo! (YHOO_). Baidu and Tencent were early days. Sina (SINA_) was a boring AOL(AOL_)-type company.

When big U.S. brands came to China -- whether MySpace or Google (GOOG_) -- they brought capital, know-how and coolness.

That Was Then

Today, things are much different in China. The market is flooded with capital. Any private company with a decent business plan can come up with some money.

There is tremendous technical talent available and it is much cheaper than in the U.S. It is getting a little competitive for the best talent in Beijing, Shanghai and Shenzhen but the costs are still far lower than the U.S. and the supply is very high.

Read the full post on TheStreet.com here

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Alibaba Group will IPO as a Whole - Not as Parts

When it IPOs, expect one Alibaba Group IPO - not several parts IPOs.

Read the full Forbes post

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More Chinese Rumors about Yahoo! Bidders

New Chinese rumors say Alibaba Group and Softbank or Masa Son might also take a run at Yahoo!

Read the full post in Forbes

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Yahoo!: The Perils of Whale Watching

By Eric Jackson09/21/11 - 06:00 AM EDT


NEW YORK (TheStreet) -- Earlier this spring, when Yahoo!(YHOO_) was bumping along around $16 a share, David Einhorn bought the stock.

When he revealed the new holding on May 2, the stock jumped. A few days later, it closed at $18.65 a share. Investors were finally ready to buy in to the Yahoo! sum-of-the-parts story which suggested the stock was worth in the mid- to high-$20s.

According to Einhorn's first quarter letter:

"The Partnerships established a new position in Yahoo! at an average cost of $16.93 per share. The company developed an extraordinary anti-shareholder reputation in recent years, beginning with its ill-advised decision in early 2008 to turn down Microsoft's(MSFT_) equally ill-advised (and ill-timed) bid to buy the company for $31 per share.

"Now, under new management, YHOO has taken some increasingly shareholder-friendly steps. It has given up competing with Google(GOOG_) in the web search business, a move which is improving free cash flow by reducing capex and operating expenses. It is using the improved cash flow to step up share repurchases (the company bought back more than 7% of its outstanding shares in 2010). YHOO is also taking steps to unlock value from some of its Asian assets in a tax efficient manner, including its 35% stake in publicly-traded Yahoo Japan.

"YHOO currently has $3 per share of net cash on its balance sheet and has approximately another $8 per share of value in its two minority equity stakes of publicly traded companies in Asia (Yahoo Japan and Alibaba.com). Assigning a conservative valuation (5x current year EBITDA) implies $18 per share for just the core businesses and the publicly traded securities and cash.

"We believe that Yahoo's most valuable asset is its 40% stake in Alibaba Group's still-private holdings, which are separate and distinct from its ownership in the publicly-traded Alibaba.com, which we are essentially getting for free. Among Alibaba Group's privately held Chinese internet assets is a company called Taobao, which is the leading eCommerce website in China. More merchandise was sold on Taobao last year than on eBay, and Taobao's merchandise sales are growing 100% annually. We would not be surprised if YHOO's 40% stake in Alibaba Group alone was ultimately worth YHOO's entire current market value. YHOO stock ended the quarter at $16.68 per share."

Of course, shortly after that euphoria came over the stock, Yahoo! disclosed that it had lost control of its ownership stake in Alipay through a footnote in a 10-Q at least 45 days after it first knew about it. (Fantastic governance, guys.)

That set off a three-month decline in the stock. By July 7, Einhorn had had enough and wrote to his investors:

"Shortly after [our] purchase, the value of the Chinese assets came into doubt as the CEO of the Chinese unit hived-off a valuable subsidiary into a corporation that he personally controls. From there, the finger pointing started going in every direction. This wasn't what we signed up for. We exited with a modest loss."

The pain for Yahoo! shareholders didn't end until Aug. 8, when the stock bottomed out at $11.09 with 60 million shares trading that day.

Coincidentally, that date was the first day that Dan Loeb bought 2.5 million shares of Yahoo! for his Third Point hedge fund. He continued buying for the next month until he became the company's third largest investor owning over 5% of the company.

Dan disclosed his 5% activist stake in the company two weeks ago and wrote to the board of Yahoo! then that:

"We firmly believe that there is much to be gained from a successful and rapid transition in management, as we are convinced that Yahoo is grossly undervalued. We have followed Yahoo for many years, and our analysis suggests that at a share price of $13.61, with $2.49 per share in tax adjusted net cash, $3.10 per share and $5.24 per share of after-tax values for the Yahoo! Japan and Alibaba Group stakes respectively, core Yahoo is left at an implied value of $2.78 per share or 2.2x 2012 EBITDA.

"With more effective and focused management, one could realistically envision a re-rating to at least 7.0x 2012 EBITDA, driving a target of over $19.00 per share. When coupled with tax efficient outcomes for its Asian assets, an additional $3.00-4.00 per share stands to be realized. Continued share count reduction via buybacks and other potential capital structure optimization alternatives would further bolster the Company's stock price.

" In addition, based on our discussions with industry experts and entrepreneurs, we believe that with new management, there is significant further value in leveraging Yahoo's globally trusted franchise and platform for a range of new products and innovations.

"Focusing specifically on the Alibaba Group, the mid-term value potential for this stake alone could represent another $5.00 per share of upside. The e-commerce interests housed under the Alibaba Group umbrella hold the dominant positions in the "B2B" (63% of 2010 market share according to Marbridge Consulting), "C2C" (85% share) and "B2C" (51% share) Chinese e-commerce markets. Alibaba Group's Taobao business is essentially Ebay and Amazon on steroids in terms of market share and revenue growth.

"According to Goldman Sachs, the Chinese e-commerce market was $75 billion in 2010, with a 3-year forward compound annual growth rate of 43% compared to the $193 billion U.S. market with compound annual growth of 14% over the same period. We currently estimate a pre-tax value for Alibaba Group of $25 billion. Given Alibaba Group's growth potential and market share, it is entirely conceivable that Yahoo's 40% fully diluted stake in Alibaba Group could double in value over the next 2-3 years, highlighting its tremendous value."

With certain value-enhancing steps, in other words, Loeb sees a company worth $28 a share. And I think he's being conservative when he says Alibaba Group would be worth $25 billion today. More realistically, it would be worth between $40 billion to $60 billion today -- depending how frothy the market was at the time.

So how can you have two equally smart and capable hedge fund managers come to such different conclusions about the same company?

You can see both have the same basic assumptions for the tangible part of the business. It's just that Einhorn assumed Alibaba Group was worth zero after the Alipay fiasco (or at least the risk attached to that asset was too high for him to keep holding). On the other hand, Loeb saw Alibaba Group as worth $25 billion. He also indicated that the relationship between Yahoo! and Alibaba Group could be saved (after getting rid of most of the Yahoo! board).

In fact, at a conference last week in New York in response to a question from Lee Cooperman (who also owned Yahoo! earlier this year), Loeb hinted that he'd personally been in touch with Jack Ma and something was in the works with him making a play for Yahoo! or its Alibaba Group stake.

I think the bottom line here -- and it's my educated guess -- is that Einhorn had done less research on Yahoo! than Loeb and just could handle the idea of looking like a fool in front of his investors if Ma did something crazy or Yahoo!'s board did something dumb.

Einhorn isn't alone in that view. On Aug. 8 -- the same day Loeb was jumping on Yahoo!'s stock at 52 week lows -- I met with 3 large investors in New York who were looking at Yahoo! All three wouldn't touch the stock, despite my strong urgings to the contrary.

They all talked about Ma as a loose cannon and how they'd look terrible in front of their investors if he screwed things up.

When I argued why I believed he wouldn't, one investor barked back: "Yeah but that's just your opinion. I need assurances. We can't put a billion to work on this with an opinion backing it up."

Loeb did.

Look, I don't begrudge Einhorn or others who passed on Yahoo! because of either strong risk management hurdles or insufficient comfort based on their research to date. Every firm has to know when they'll take a pass on something.

However, it was that hesitation on the part of others which was Loeb's (and other longs') opportunity. The difference between the potential return and the potential risk was -- in his view -- much more highly skewed to the upside than the downside.

The bottom line is that you cannot just follow so-called "whales" and how they trade a stock. Do your own due diligence. Form your own opinions. Invest accordingly.

[Jackson was long YHOO at time of publication]

Read the full post on TheStreet

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Does This Former Alibaba Insider Think Alibaba Group Is Worth $50 Billion?

A slip of the tongue from an Alibaba insider a year ago suggested Yahoo's stake alone in the private company is worth $20 billion.

Read the full Forbes post

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MarketWatch: An idea to appease Yahoo investors

From today's Therese Poletti's MarketWatch column:

By Therese Poletti, MarketWatch

SAN FRANCISCO (MarketWatch) — Investor Eric Jackson has some ideas for Yahoo Inc. that could appease its battle-scarred investors and solve the problem of what to do with the company’s highly valued Asian assets.

Some readers might remember that Jackson has been an outspoken investor when it comes to Yahoo YHOO -0.10% . In 2006, he wrote an open letter calling on Terry Semel to step down as chief executive. He also was one of the more vocal activists who criticized the board during Carl Icahn’s proxy fight with Yahoo in 2008.

This time around, Jackson has been relatively quiet, mostly opining in columns on Forbes and on Twitter.

First and foremost, he said he would prefer that Yahoo simply spin out its Yahoo Japan assets to shareholders, either though a sale to Softbank Corp. or some sort of other spinout.

But if that doesn’t happen, his next best idea is for Yahoo to create three separate tracking stocks. It’s a tactic that has been used by other media companies in the past — including Liberty Media Corp., which embarked on the idea in 2006 and has since resulted in three tracking stocks.

“They wouldn’t have to seek Softbank’s approval or Alibaba’s approval, which otherwise might be a sticking point,” said Jackson, referring to Yahoo’s 40% stake in the privately held Alibaba, the largest e-commerce company in China. In addition, Softbank JP:9984 -1.63%  of Japan owns about 29% of Alibaba.

“They would have to present it to shareholders, but that’s probably a foregone conclusion because anything that is going to create more value than the current status quo” would get approved, he added.

Jackson, whose firm Ironfire Capital currently owns a stake in the Internet pioneer worth about $25 million, said he has pitched the idea to Yahoo, but doesn’t believe the company is receptive to this notion. Jackson’s proposal would include a tracking stock for the core Yahoo business, another for Yahoo Japan and another stock to represent its 40% stake in Alibaba.

“I have presented these ideas to them,” he remarked. “I sense a weariness from them. They say, ‘We have already thought of that. Our experts have problems with that.’ I think that goes back to the tone at the top, the tone coming from the board.”

Investors appear to be fed up with Yahoo’s board, which fired former Chief Executive Carol Bartz two weeks ago. Hedge-fund investor Daniel Loeb, whose firm Third Point has a 5.2% stake in Yahoo, said he will wage a proxy fight and propose a slate of new directors at the annual meeting next year if he’s unable to make any headway with the board.

“From the failed Microsoft MSFT +0.04%  sale negotiations; to a subsequent bungled and disappointing search deal with Microsoft; through a series of misguided CEO selections; and most recently the Alipay debacle, this board’s failures have destroyed value for all Yahoo stakeholders,” Loeb wrote in his letter to the company’s board two weeks ago.

As Loeb notes, one of the many sore points for investors is the company’s hefty stake in the privately held Alibaba, which has at least one pre-IPO property, Taobao.

Jackson’s theory is that a tracking stock could mirror the value of the Asian assets, which cannot be easily spun off. The shareholders, though, don’t have any ownership of the assets they are tracking.

“To me and to a lot of Yahoo investors, looking at the Yahoo Japan piece, there is a value to be extracted there,” according to Jackson. “But it’s time to harvest that asset.”

Short of that, the tracking stocks would be a way to share some of the underlying value with investors. With a lot of the M&A talk going on regarding Yahoo, with private-equity firms reportedly looking at the company, Jackson said it would be a mistake to sell off the entire Alibaba stake. “It’s going to go through some huge growth,” he commented. Read more about potential bidders taking a look at Yahoo.

Tracking stocks certainly can be problematic in and of themselves, because there still remains one legal corporate entity, one CEO and conflicts among the different shareholder groups as to the allocation of resources in a company.

But since Yahoo’s core operations have nothing to do with Alibaba, a tracking stock for those assets might work as a way to assign the real value to the assets that many investors believe are propping up Yahoo’s shares.

Another potential problem with this idea is that Alibaba is private, and its financials are mostly undisclosed. Investors would need this sort of data to evaluate such a tracking stock. Yahoo would have to disclose Alibaba’s financials to U.S. regulators as well as investors.

“Yahoo could do this and Alibaba Group wouldn’t be able to stop them,” Jackson said. “It is completely within Yahoo’s current set of rights. However, Alibaba doesn’t want to release their full financials, because this lowers their bargaining power in trying to buy back part of their 40% stake that Yahoo controls before Alibaba Group decides to IPO.”

Even Jackson agrees that with all the deal chatter, this scenario is not likely to happen, unless one of the companies looking at Yahoo is Liberty Media itself. With Greg Maffei, former chief financial officer of both Microsoft and Oracle as Liberty’s current chief executive, it’s not completely out of the realm of possibility. 

Therese Poletti is a senior columnist for MarketWatch in San Francisco.

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The Most Likely Buyers for Yahoo!

Which folks are likeliest to buy Yahoo! and at what premium?

Read the full Forbes Post.

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2 Big Misconceptions About Yahoo!

NEW YORK (TheStreet) -- Over the last week, there has been a lot of speculation about whether and how Yahoo! (YHOO_) might get acquired.

The hounds have been circling the prey. There's clearly a lot of value embedded within Yahoo!'s core business, its stake in Alibaba Group and in its stake in Yahoo! Japan.

However, there are many misconceptions shared in the mainstream media, including the venerable Wall Street Journal, surrounding some aspects of how value might be unlocked. Let me correct these misconceptions.

First, let's talk about if Microsoft (MSFT_) or any other company was to swallow Yahoo! whole. Some have speculated that such a move would trigger a change-in-control clause that's part of the 2005 investment between Yahoo! and Alibaba Group. If that was true, Alibaba Group (or stakeholder Softbank) could object to such a deal and have a "right of first refusal." That would lower the value of Yahoo!'s 40% stake in Alibaba Group.

Yet, I've spoken to investors in both Microsoft and Yahoo! -- some of whom have spent a lot of money on multiple law firms to go through the agreements -- and they are firmly of the opinion that this view is false. When Microsoft proposed acquiring Yahoo! back in 2008, a "change of control" clause would not have been triggered because Yahoo! would not have ceased to exist. The company would have continued as an operating entity under Microsoft. Microsoft would have gained full access to the Alibaba Group (and Yahoo! Japan) stake. Jerry Yang would have remained on the board. Yahoo! would still have the right to appoint a fifth member to the Alibaba Group board.

The Tax Fallout

The second misconception is around what the tax implications are for Yahoo!'s stake in Yahoo! Japan and Alibaba Group. Several media reports have indicated that these tax issues are weighing on Yahoo!'s ability to spin off or dispose of these assets.

If Yahoo! has any plan to dispose of its Alibaba Group stake, they certainly haven't said anything along those lines, even though I've spoken out in favor of them selling 10% of their stake (4% of Alibaba Group overall). However, Yahoo! has been talking about unloading their stake in Yahoo! Japan since at least January -- and yet, they haven't done it, frustrating investors.

Read the full post here on TheStreet.com

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