Why Sprint's Softbank Deal Is Good for Yahoo!
NEW YORK (TheStreet) -- SoftBank (SFTBY:OTC) just dropped $20 billion to buy control ofSprint Nextel (S).
Showing posts with label Softbank. Show all posts
Showing posts with label Softbank. Show all posts
Monday, October 15, 2012
Wednesday, September 19, 2012
What Yahoo! Must Do Next
NEW YORK (TheStreet) -- On Monday in Real Money, I suggested that readers go long Yahoo!(YHOO) stock or short-term calls betting on a deal with Alibaba being announced by today. Instead, the deal got announced yesterday.
Read the full piece in TheStreet
Monday, July 23, 2012
A Peek Into the Future of Mobile with Former HuffPo CEO Eric Hippeau
Eric Hippeau of Lerer Ventures gave me a sneak-peek into some of the tech trends influencing which hot tech start-ups he's backing. We also swapped old Yahoo! stories.
Read the full post in Forbes
Friday, December 23, 2011
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
Thursday, December 22, 2011
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
Wednesday, November 09, 2011
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
Friday, October 28, 2011
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.
Tuesday, September 27, 2011
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
Friday, July 29, 2011
Wednesday, June 22, 2011
Why Either of these Two Asians Should Be Yahoo!'s Next CEO
Yahoo! doesn't need another boring and ineffective American to lead it. Let's let an Asian take the wheel - and finally unlock some value for Yahoo! shareholders.
Read the full post here at Forbes.
Friday, June 17, 2011
What Will Jack Ma Do Next With Yahoo!?
Jack Ma's reputation has taken a bit of a hit in the US and China, since he yanked Alipay out of Alibaba Group and away from Yahoo! and Softbank. her's what's likely to happen next.
Please read the full post in Forbes.
Thursday, May 26, 2011
Why Drastic Change is Needed On June 23rd For Yahoo!'s Board
It's time for change at the top of Yahoo! On June 23rd, investors will get a chance to do just that.
Read the full post here at Forbes.
Monday, May 16, 2011
Time for Yahoo! and Alibaba to Reboot Their Relationship
By Eric Jackson After seeing the stock drop 10% at the end of last week, and hearing from the Yahoo! public relations team that the company had been informed on March 31 in a letter to its accounting department that it no longer owned Alipay, Yahoo!'s shareholders virtually stormed the boardroom in Sunnyvale, Calif. Late Friday, a Chinese website reported that Alibaba Group still owned Alipay. The entity had simply been transferred to a variable interest entity (VIE) for the purposes of obtaining the necessary new online payment license from the Chinese government. But that version of events got no play in the U.S. media. It was simply assumed that Jack Ma -- Alibaba Group's CEO and founder -- had deceived the Americans and Japanese. Based on a joint statement from Yahoo! and Alibaba Group over the weekend, it's clear that Yahoo! shareholders have read the riot act to the board. They've basically said, "Stop these inane press releases, get your act together and get your facts straight!" Any talk of suing Alibaba Group by anyone connected to Yahoo! is going to be quickly snuffed out. It's time to reboot this relationship. Both sides (and, of course, Japan's Softbank Corp. with its 30% ownership stake) have a lot to gain or lose from how communications are handled going forward. If you think that Jack Ma can simply take Alipay and Taobao away from Yahoo! and Softbank with no implication to his long-term reputation and to Sino-American business relations, think again. Ma knows this. Just because he doesn't like the 2005 deal he struck, accepting Yahoo!'s $1 billion in exchange for a 43% stake, he can't turn his back on it. ... [*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]
RealMoney Contributor
5/16/2011 12:15 PM EDT
Click here for more stories by Eric Jackson
Last week's press-release war between Yahoo! (YHOO - commentary - Trade Now) and Alibaba Groupwas a car crash you couldn't look away from.
Now it seems as if some adults -- I mean Yahoo! shareholders -- intervened on behalf of their petulant children over the weekend.
Why A Deal Might Happen Next Between Yahoo! and Alibaba Group
The Yahoo! - Alibaba soap opera last week has led to many conclusions based on imperfect information. Here's why I think a deal between Yahoo! and Alibaba will happen sooner rather than later.
Read the full post on Forbes here.
Thursday, October 14, 2010
Yahoo! Buzz Will Lead to a Hangover
By Eric Jackson
RealMoney Contributor
10/14/2010 3:15 PM EDT
Click here for more stories by Eric Jackson
RealMoney Contributor
10/14/2010 3:15 PM EDT
Click here for more stories by Eric Jackson
Yahoo! (YHOO - commentary - Trade Now) once again found itself in the headlines on rumors of a possible buyout deal. The stock got as high as $18 this morning before the open on the hopes and dreams of long investors that a buyout of the company by AOL(AOL - commentary - Trade Now), News Corp.(NWS.a - commentary - Trade Now) and a combination of private equity firms such asBlackstone (BX - commentary - Trade Now) orSilver Lake was imminent.
Sphere: Related Content
This news was broken last night by Kara Swisher at The Wall Street Journal's "All Things Digital" and then followed up by aJournal article. Swisher made it clear in her reporting that any deal wasn't imminent.
This morning, one Yahoo! shareholder said thatMicrosoft (MSFT - commentary - Trade Now) was the best acquirer for Yahoo! and should step up to buy the company in order to keep it from falling into the hands of AOL or News Corp. This line of thought goes: 1.) the burgeoning search deal between Microsoft's "Bing" and Yahoo! is too strategic for Microsoft to let Yahoo! fall into unfriendly hands, and 2.) taking out Yahoo! at its current $22 billion market capitalization is pocket change for Microsoft.
The problem is that such a deal is going to be very complex to pull off and -- in my view -- unlikely to happen anytime soon. As such, I believe Yahoo!'s stock price is headed lower in the short term, rather than higher. Indeed, Yahoo!'s price action this morning suggests that most investors are staring at the possibility of a deal in the cold light of day.
Haven't Yahoo! investors been here before?
Here's the big problem with a Yahoo! buyout in the short term: There are too many moving parts. If you're expecting Yahoo!'s board, Alibaba.com, AOL, News Corp., Microsoft, and multiple private-equity bidders to get on the same page in the next month, I suggest you go organize world peace at the United Nations as your next task. Everyone has competing desires and price targets in mind.
The main driver of a Yahoo! shake-up is the company's stake in Chinese e-commerce site Alibaba. Most people know that Yahoo! did a deal to buy a 40% stake in Alibaba five years ago, probably Jerry Yang's biggest contribution to the company during his tenure. (It might go down as strategically even more important than his co-founding of the company. Think about that.) Alibaba has tremendous assets in China that are only going to become more valuable over time.
Most people also know that Yahoo! wants to wait to sell its Alibaba stake until after that company takes its remaining private assets public in an IPO. Alibaba, not surprisingly, would like to buy back Yahoo!'s stake pre-IPO.
What many people aren't aware of is that, under the terms of the 2005 investment, Yahoo!'s stake in Alibaba just increased to 39% from 35%. Alibaba CEO Jack Ma and his management team saw their stake drop to 32% from 36%. (Softbank Corp. retains its 29% stake.)
...
Thursday, August 21, 2008
TheStreet.com: Activist Investor: Yahoo! Mustn't Fumble Asian Assets
By Eric Jackson
08/21/08 - 12:19 PM EDT
from TheStreet.com
What will Yahoo!(YHOO - Cramer's Take - Stockpickr) and its board do next to try to win back its shareholders' support?
It's highly likely they will seek to appease disgruntled shareholders by unlocking value in their collection of Asian assets, which currently make up 35% of the value in Yahoo!'s $20-a-share valuation. But Yahoo! shareholders need to be vigilant as to how this is done, especially with regard to the nonpublic entities Taobao.com and AliPay.com (the eBay (EBAY - Cramer's Take - Stockpickr) and PayPal of China, respectively).
It's been a difficult seven months for Yahoo! shareholders, who saw their shares increase in value to $30 from $19, only to drop back to pre-Microsoft (MSFT - Cramer's Take - Stockpickr) bid levels. At the shareholder meeting earlier this month, Yahoo!'s board strongly defended itself, saying it had done everything possible to achieve a deal with Microsoft. It also laid out the case for why its go-it-alone strategy would succeed and why Yahoo! still has an enviable array of assets that neither Microsoft nor anyone else can replicate anytime soon.
Yahoo! does have great assets -- that's why I first invested in the company two years ago. However, the company's board is weak, and it has exerted poor oversight while approving lavish pay to its executives and board members. Even with Carl Icahn and his colleagues Frank Biondi and Gary Chapple joining the board, this is still largely the board that former CEO Terry Semel assembled five years ago. A board that continues to be weak has the potential to continue to make poor decisions on behalf of its shareholders. That might happen sooner rather than later.
I attended Yahoo!'s most recent shareholder meeting and asked about several governance-related incidents over the last year that I felt weren't in shareholders' best interest. For example, Yahoo! decided last August to sell its $400 million-a-year Overture Japan business to Yahoo! Japan (which was essentially a sale to Softbank, the other owner of Yahoo! Japan) for $13 million. That's a far cry from the three to five times multiple of annual revenue Yahoo! typically has paid for venture capital-backed companies such as Zimbra, Rivals and Right Media.
Such a deal seems to have greatly benefited Softbank at the expense of Yahoo!'s shareholders. (And Yahoo! hasn't offered me a detailed explanation, if there is one.) Right or wrong, this appeared to be a sweetheart deal. If this is how Yahoo! operates, it's not unreasonable to believe the company could do the same thing with its Chinese partner Alibaba.com.
Chief Financial Officer Blake Jorgensen said during the shareholder meeting that Yahoo!'s collection of Asian assets (from its stake in Yahoo! Japan, Alibaba in China, and GmarketGMKT in Korea) are worth about $7 a share to Yahoo! shareholders at today's market prices. However, as Jorgensen noted, Yahoo! maintains significant ownership (through its Alibaba stake) in two significant private Chinese companies: Taobao.com and AliPay.com.
Both Chinese companies have great potential. They already are the clear leaders in their verticals in China. (eBay just retreated from the Chinese market because of its inability to compete.) Taobao.com and AliPay.com also have chosen deliberately to grab market share in the past few years by not charging users' fees. As you can imagine, such pricing has helped their user base explode. The costs for both companies are very low and they both know they can turn the meter on at any time with a very large payback.
And so here's the governance issue: How should these assets be valued if Yahoo! wants to extract value from its stake in these private companies? If you valued them today, there is no revenue and the earnings are negative. But in two years, when each company turns its meters on and begins to generate hundreds of millions of dollars, the companies will be much more valuable.
There are two ways Yahoo! could extract value from Taobao.com and AliPay.com: Agree to a management buyout with each company's management -- most likely the management of Alibaba -- or spin off these assets to Yahoo! shareholders with the stakes in the other Asian assets.
A management buyout would be another partner-friendly sweetheart deal that would greatly enrich Alibaba insiders at the expense of Yahoo! shareholders. Therefore, a spinoff is the right thing for Yahoo! shareholders. In a spinoff, even if the shares are valued low today relative to what they will be in a few years after the private entities start charging fees, Yahoo! shareholders can decide whether to hang on to their stakes.
The management buyout approach gives Alibaba full ownership of a growing asset at a significant discount to its true inherent value. Alibaba or the management teams would gain full control of these private assets at today's artificially low prices, knowing full well they are buying an asset that will be worth three to six times as much in a very short time. There's no market risk to them achieving a higher market valuation. All they have to do is flip the switch and start charging their loyal users a small fee. I would take on that kind of risk any day.
In the case of the Yahoo!-Overture Japan deal, shareholders found out about it after the fact. It was barely mentioned in an analyst call and buried in the back of a Securities and Exchange Commission filing. Yahoo! shareholders didn't have the good fortune of a large shareholder like Capital Research calling on the company to explain itself as they did earlier this month when Capital Research brought to light the significant underreporting of shareholder discontent with the current Yahoo! board. Therefore, all Yahoo! shareholders need to pay close attention now to how Yahoo! unlocks value with its Asian assets.
Softbank got a great deal for Overture Japan. Alibaba shouldn't get a great deal for Taobao.com and AliPay.com. Yahoo! shareholders deserve to be treated fairly.
At the time of publication, Jackson was long YHOO.
Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.
Friday, August 08, 2008
Yahoo!: Do The Right Thing for Your Shareholders with Taobao and AliPay
It's been a difficult 7 months for Yahoo! shareholders. Last week's shareholder meeting did little to quell concerns about the company's prospects moving forward.
Yahoo!'s board and management team essentially argued to shareholders in their presentation: trust us; we have a plan and we will execute against it.
I attended the meeting and asked about several governance-related incidents which have happened in the last year and have not been -- in my opinion -- in the interests of Yahoo! shareholders. The whole Vote-Gate announced earlier this week has been even more disconcerting.
It's sad to say, but I don't believe Yahoo!'s board or management team have done enough to deserve our respect and trust. Therefore, we need to continue to be vigilant and speak out for our own good.
I want to make Yahoo! shareholders aware of a potential scandal which has yet to occur. Hopefully, with enough pressure ahead of time, we can ensure it does not become a scandal. It relates to Yahoo!'s Asian assets, which have been much discussed in the last few months as a way of unlocking value for beleaguered Yahoo! shareholders.
As CFO Blake Jorgensen articulated during last week's shareholder meeting, Yahoo!'s collection of Asian assets (from its stake in Yahoo! Japan, to Alibaba in China, and Gmarket in Korea) are worth about $7 / share to Yahoo! shareholders at today's market prices. However, as Blake noted, Yahoo! maintains significant ownership (through its Alibaba stake) in two private Chinese companies: Taobao.com (China's eBay) and AliPay.com (China's PayPal).
Both have huge potential. They already are the leaders in their verticals in China. eBay just retreated from the Chinese market because of their inability to compete. They have also deliberately chosen to grab market-share in the past few years by not charging users fees. As you can imagine, these economics have helped their user-base explode. Neither company has minded doing this, because their costs are very low and they both know that they can turn the meter on at any time with a very large payback.
So, here's the governance issue: how should these assets be valued if Yahoo! wants to extract value from their stake in these private companies? If you valued them today, there are no revenues and negative earnings. If you valued them in a year or two when they each turn their meters on and generate hundreds of millions of dollars, you would have a much more valuable company.
There are two ways Yahoo! might extract value from Taobao.com and AliPay.com:
(1) agree to a Management Buy-out with each company's management or with Alibaba or;
(2) spin-off these assets to Yahoo!'s shareholders.
The latter option is the right thing to do for Yahoo! shareholders. Even if these shares are valued low today relative to what they will be in a few years after they start charging fees, Yahoo! shareholders can decide whether to hang on to them or not.
The Management Buy-out approach could be exploited. Alibaba or the management teams could decide to buy back Yahoo!'s stake at today's artificially low prices -- knowing full well they are buying an asset that will be worth 3 - 6 times as much in a very short time. Who wouldn't want that type of sweet-heart deal?
I do not know what Yahoo! is contemplating with these assets, but I believe sunlight is the best disinfectant. Better to bring this issue to light now and remind them to not even go there, then scream bloody murder after the fact when it's a done deal.
I wouldn't be as skeptical that such a sweet-heart deal might occur if I hadn't witnessed Yahoo! selling its $395 million / year Overture Japan business to Yahoo! Japan (Softbank) for $13 million last August. I asked Jerry about this deal last Friday. He said that Investor Relations had answered my question last year when I first raised it. (They didn't; they merely repeated Blake Jorgensen's public comments during two analyst calls which were vague and provided no clear rationale.) Jerry also suggested to me in his comments that there were "tax reasons" for doing such a deal, without further explaining. (Jerry: If there were such reasons, can you elaborate for the benefit of shareholders?)
Softbank got a great deal for Overture Japan. Alibaba shouldn't get a great deal for Taobao.com and AliPay.com. Yahoo! shareholders deserve to be treated fairly.
Thursday, October 18, 2007
Yahoo!'s Q3 Recap: No Light Really Shed on Overture Japan Sale
Congrats to Jerry Yang, Sue Decker, and Blake Jorgensen (and the rest of the Yahoo!s) for a good Q3 announced Tuesday. Yahoo! shareholders and employees alike finally feel some wind at their backs.
Yahoo! under-promised and over-delivered to the excitement of investors in the after-market which carried through Wednesday's trading. Smartly, management looks to continue this approach in Q4 by keeping their heads low and their guidance lower.
The disappointment amid the good news was net income dropping -- specifically in affiliate revenues and in international. This is troubling when the company stepped on the gas in hiring in the quarter. That's something that definitely needs to be addressed this quarter. Further streamlining the middle-upper management would be a wise place to start, as well as in cuts for Southern California.
I was hoping for greater clarity from Blake Jorgensen on the deal which closed in the quarter whereby Yahoo! sold a $395 million a year business (or at least its sales and marketing operations, if not the de facto business) in Overture Japan to Yahoo! Japan (of which they are a 34% JV partner) for $13 million -- a "very nominal" amount to quote Jorgensen's Q2 call comments.
Here were Blake's relevant comments from Tuesday's earnings call on this topic:
Yahoo! Japan will pay us a service fee for providing search advertising and support services, and we expect this transaction to be slightly positive in OCF in the short term compared to our previous affiliate arrangement with Yahoo! Japan. As we mentioned in July, we received a small upfront payment and we believe that the majority of the value of this deal will be realized via our long-term relationship with Yahoo! Japan.
It's not clear to me how the transaction allows for a presentation of a more unified offering to Japanese customers than a joint sales call with someone from Yahoo! Japan and someone from Yahoo! (Overture Japan). At the end of the day, the customer was dealing with Yahoo! Japan, not Google or Microsoft, for a discussion of how they could be best served by Yahoo! Japan.
As there will a "modest net decrease in revenue ex-TAC" through at least 2008, why did Yahoo! do this deal? Jorgensen offers two reasons in his next paragraph:
1. Slightly positive OCF in the short-term, presumably through the new "service fee" paid by Yahoo! Japan to Yahoo! Yet, it's not clear how this new service fee operates and how "slightly positive" the impact on cash flow will be.
2. The assurance of a continued, longer-term relationship with Yahoo! Japan. The implication of this benefit is that the relationship conceivably could have ended. I suppose the doomsday scenario is that you would have been searching for sushi in Tokyo through Yahoo! Japan with results delivered to you by Ask's algorithm. It's hard to imagine that Yahoo! would have let itself get into such a weak negotiating position to allow that scenario.
Unfortunately, none of the Wall Street analysts chose to ask about this during the Q&A session following the prepared remarks. Therefore, Yahoo! shareholders are still left wanting a more complete explanation.
Henry Blodget was curious why international revenue growth in the quarter decelerated from 15% to 9%. Here is a hypothesis: a $395 million annual revenue business (Overture Japan) that was sold off on August 31st wasn't able to contribute $32.5 million to Yahoo!'s last month of Q3. With that extra $32.5 million, Yahoo!'s Q3 international revenue would have been $608.3 million -- or a 15% growth rate over the previous year's Q3.
On the one hand, that's some comfort to Yahoo! shareholders in guessing why the drop. However, it still doesn't help us better understand the rationale for the Overture Japan deal in the first place.
Let's hope we don't have to wait until shareholders can push aside the analysts to ask these questions for themselves at next year's Yahoo! Annual Meeting. Sphere: Related Content
Tuesday, October 02, 2007
More Questions on "Sale" of Overture Japan KK to Yahoo! Japan
Last week, I published a post (in response to a suggestion from a Yahoo! "Plan B" supporter) focusing on the recent sale of Overture Japan KK by Yahoo! to Yahoo! Japan. I complained that the sale price of just over $13 million was way too low for a company that did $395 million last year.
I was contacted by Yahoo!'s Investor Relations (IR) team the next day. I signed an earlier NDA with Yahoo! (due to previous discussions I've had with them this year) which prevents me from disclosing information they reveal to me which isn't public. Therefore, I want to respect that, but I did speak with them yesterday and had an opportunity to further press my case that they share more information to shareholders. They attempted to better explain the deal to me. Obviously, they believe this is a good deal for shareholders and they made their case for it. However, I -- and shareholders -- need more information from the company before coming to a conclusion.
So I call upon Yahoo! to share more information on this deal publicly -- even before the Q3 earnings call -- so that all shareholders can review it. The way this transaction has happened -- with only a release to date from Yahoo! Japan and no public comment from Yahoo! since then -- creates questions in the minds of shareholders that Yahoo! shouldn't allow to linger.
There was nothing in Yahoo!'s last 10-Q on the Overture Japan sale because the deal hadn't closed yet. The only public comments to date on this subject came from Blake Jorgensen during the last earning call. Here is a summary of those comments:
Let me spend a moment on our pending deal with Yahoo! Japan. We've been working towards transferring ownership of the sales operations of Overture KK in Japan to Yahoo! Japan. We're excited about this transaction because it should allow us better alignment of search and display advertising sales in Japan, making the business more competitive and essentially securing a favorable and very long-term revenue stream to Yahoo!.
The terms are not yet final, but once the deal closes, you will see several changes in our financial statements. We will no longer pay TAC to Yahoo! Japan and they will instead pay us a service fee, which we expect will be included in our marketing services revenue. As a result of the transaction, our GAAP revenue is expected to be between $200 million and $250 million lower in the back half of 2007 and TAC will come down commensurately.
Revenue ex-TAC will decrease modestly under the new structure as the new service fees will largely offset the lost affiliate revenue. The impact to operating cash flow is expected to be broadly neutral near term, but accretive for both companies long term, versus our prior arrangement. The transaction is structured to deliver value through a long-term service fee arrangement with only a very nominal upfront payment to us.
So, given only these details of the transaction (which are here), my questions as a Yahoo! shareholder to Blake are as follows:
- Why did Yahoo! do this deal in the first place? How are Yahoo! shareholders better off today versus prior to August 31st (when the deal was announced)? Better "alignment" sounds great, but why can't you get people aligned when they work in very close proximity in the same Tokyo neighborhood? Yahoo! Japan office is in Roppongi Hills Mori Tower, 10-1, Roppongi 6-chome, Minato-ku, Tokyo and Overture Japan's office is in 4-3-1, Toranomon, Minato-ku, Tokyo (in other words, the same Minato neighborhood). Beyond alignment, and given that Yahoo! received the "very nominal" $13 million for Overture Japan and that Yahoo!'s go-forward "revenue ex-TAC will decrease under this new structure," why do this deal? How are Yahoo! shareholders better off?
- Was Yahoo! at Risk of Losing the Paid Search Business for Yahoo! Japan? The only reason I can imagine for doing this deal from the Yahoo! perspective is the risk that they might lose the "favorable and very long-term" business from Yahoo! Japan. However, if that's true, how could Yahoo! have let itself get into that position in the first place? It seems inconceivable that Yahoo! -- when it was first negotiating an agreement with Softbank 10 years ago to set up Yahoo! Japan -- would allow Softbank (or Yahoo! Japan) to turf out Yahoo! in the future in favor of using a competitor for some services. In Yahoo!'s defense, the company didn't compete with Google 10 years ago and didn't have any idea that paid search would be as big an area as it is. Perhaps it is possible that Yahoo! Japan had this "out card" and decided to play hardball with Yahoo! If this is true, it raises questions about how Overture Japan's relationship was set up in the first place with Yahoo! Japan after Yahoo! acquired Overture in 2003.
- Is there a difference between "transferring ownership of the sales operation of Overture Japan KK to Yahoo! Japan" and selling Overture Japan KK to Yahoo! Japan for US$13 million? Blake's language specifically doesn't state that this is a sale. However, if Yahoo! has transferred ownership of the sales operation to Yahoo! Japan, what's left of Overture Japan KK? Isn't this a de facto sale? If it is a sale, how does Yahoo! justify this "very nominal" sales price of $13 million for a $395 million a year business?
- How does this deal in and of itself create more cash-flow for Yahoo! and Yahoo! Japan in the long-term? The language above from Blake implies that Yahoo!'s near-term revenue ex-TAC will take a hit, although cash flow will be "broadly neutral." Yet, both companies are supposed to see the deal be long-term accretive for cash flow. This deal appears to be about moving around how revenue, costs, and marketing service fees are reported from an accounting perspective, but I haven't yet seen such a deal between two JV partners which in and of itself made more money (or cash flow) to be shared between the partners than what existed before the deal. If this is the case here, how does the deal create more cash flow for both long-term?
- How are Revenue and TAC calculated between Yahoo! and Yahoo! Japan? As of March 31st, 2007, Yahoo! Japan had a trailing 6 months of revenue of $945 million (or about $1.9 billion annualized). Yahoo! recognizes 34% of this revenue itself on a trailing basis (as per its ownership stake in Yahoo! Japan) -- or $642 million of the annualized amount. That's roughly 10% of Yahoo!'s overall annual revenues. Yahoo! Japan reports TAC of about 28% of its revenues of $529 million of the earlier annualized amount. More light needs to be shed on how these two companies calculate revenues and costs both ways through their JV and what is changing under this new agreement. Blake's comments suggest that Yahoo!'s revenues ex-TAC will decrease from this deal, but that Yahoo! Japan will increase its service fees to Yahoo! He also says that affiliate revenue to Yahoo! will decrease. Can we get some more details on how all of this will actually play out? Is Yahoo! Japan -- in addition to sharing 34% of its revenues with Yahoo! -- also paying Yahoo! a fee for use of Overture Japan, which is additional revenue to Yahoo!? If so, how significant is this to Yahoo!? Is this the revenue that will now become the "service fee" under this new agreement reported as "marketing services revenue" by Yahoo!? Until we really understand what is happening under the terms of the deal, it's difficult for a Yahoo! shareholder to judge the benefits or negatives of the deal.
Thursday, September 27, 2007
Did Softbank Get a Sweetheart Deal from Yahoo! for Overture Japan?
One of the supporters of our "Plan B" for Yahoo! Group, David Sollers, recently contacted me to share some analysis on the recent sale by Yahoo! to Yahoo! Japan of Overture Japan. The whole issue of this sale has been ignored by analysts and the press. I would hope that Sue Decker and Blake Jorgensen would address this issue and clarify it in a few weeks on the Q3 earnings call. I'm sharing with the larger "Breakout Performance" community...
On August 31, Overture Japan was sold to Yahoo! Japan (a joint venture between Yahoo! Inc and Softbank Corporation of Japan - Y! Inc has 34% stake in Yahoo Japan).
While there was no information at all anywhere on Yahoo!'s site (it should have been on the Press Room section of the corporate site), it was something that Yahoo! Japan made a big deal out of in the Japanese language press.
Even the English version of Yahoo! Japan's investor relations press releases site includes this announcement (pdf document): http://ir.yahoo.co.jp/en/release/20070831/ . In that PDF document, the terms of the sale are detailed.
Now, while I was against the sale of Overture Japan to Yahoo! Japan on principle (because it is a large market - second only to the US - where Yahoo!/Overture still has a larger market share than Google in paid search), the ridiculously low share price is something that all YHOO shareholders should be upset about.
According that press release, Overture Japan, which had revenues of JPY 45.767 billion (US$ 395 million), was sold for JPY 1.557 billion (US$ 13.426 million). That is a price-to-sales ratio of 0.034 for a profitable company with great sales growth (2005 and 2006 figures for Overture are detailed in the press release - and while net income decreased from 2005 to 2006, that can only be due to one-time charges and/or expenses which are not like to re-occur in 2007, most probably investement in hardware needed for the launch of Panama).
When was the last time you heard of a profitable company being sold off for a small fraction of its annual revenues? That price-to-sales ratio is so low that someone at Y! Inc ought to be fired. At least that is my reaction, and I would expect other shareholders to be similarly outraged.
If Y! Inc valued itself that this price-to-sales ratio (instead of the 5.3 at which it is currently valued), they'd be selling a share of YHOO for less than 20 cents per share!
Why was Overture Japan sold at this kind of "fire sale" price? Y! Inc definitely cannot be that badly in need of cash.
Let's take a look at some of Y! Inc's recent acquisitions:
- Blue Lithium: Y! Inc paid $300 million for this company which is estimated to have annual revenues of roughly $100 million (source: http://money.cnn.com/2006/09/15/technology/disruptors_bluelithium.biz2/index.htm ). That a price-to-sales ratio of 3. Ok, reasonable.
- Zimbra: Y! Inc paid $350 million for this company which is estimated to have annual revenue of $6 million (source: http://www.news.com/8301-10784_3-9780434-7.html?part=rss&subj=news&tag=2547-1_3-0-5 ). That values the company at price-to-sales ratio of 58.3, so Y! Inc must have some pretty rosy expectations about the growth that Zimbra will see over the next couple of years.
- Overture (now Yahoo! Search Marketing) was bought by Y! Inc for $1.6 billion in cash and stock in October 2003 (here's a press release from Y! Inc's Press Room: http://yhoo.client.shareholder.com/press/releasedetail.cfm?ReleaseID=119517 ). For that year Overture was expected to have revenue of $1 billion (as Overture became a fully owned subsidiary of Y! Inc, separate figures for Overture were not filed). This valued Overture at price-to-sales ratio of 1.6.
So by measure of these acquisitions, Y! Inc did indeed sell Overture for a price that was way way way to low. If we value Overture Japan at the same price-to-sales ratio that Y! Inc paid for Overture just four years ago (which is probably a reasonable valuation), we arrive at a sale price of $631 million.
So Y! Inc has sold off a profitable subsidiary for $13.4 million, when the price should have been in the range of $500 million to $1 billion.
Shareholders want to know why Masayoshi Son of Softbank received such a good price for such a valuable ad engine?
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