YHOO - the bull case

Discussion in 'Stocks' started by xxxskier, Sep 17, 2007.

  1. xxxskier

    xxxskier Guest

    There has been a tremendous dislocation in the price of this stock. Momentum traders have beaten this up. All the analcysts compare the pe ratio of GOOG to YHOO and conclude that GOOG is trading at a much cheaper pe and YHOO's pe of 45 to 1 is unjustifiable given its growth and prospect. What they fail to mention is the free cash flow. That metric is simply the organic cash generation of any company. U must strip out all the 1 time items and the non cash items like stock comp expense. And the results are shocking. the FCF of YHOO is about 1.5 billion and that of GOOG is 2.5 billion. Does that 1 billion difference justify GOOG trading at more than 5 times YHOO. I proffer that the market cap to FCF ratio is relatively very cheap...19/1.....bottom line MSFT Knows how cheap this company is and they know they better jump on IT now be4 YHOO turns the corner and the cheap buying opportunity will be gone.

    An investor actually has to read a company's filings and do some homework as opposed to complain about a P/E (which is among the most useless metrics out there). Earnings are the easiest thing to manipulate; cash flow, on the other hand has to tie.

    Take a closer look at Yahoo's balance sheet and you'll see:

    $2B in net liquid assets (cash+equivalents+receivables-debt-payables)
    ~$7-8B stake in Yahoo Japan
    ~$2-4B stake in Alibaba (depending on how conservative the valuation is, etc.)

    Now, add these up and you get Yahoo has $11-14B in net liquid assets on the balance sheet.

    Yahoo's market cap was $30B before today. Subtract these out (because they do not contribute to cash flow) and you get $16 B valuation for Yahoo's core business. Yahoo (excluding the aforementioned assets) will generate $2B in EBITDA in 2007. So, you are paying x8 EV/EBITDA multiple which is ridiculous for a large, non-capital intensive, highly liquid company. For comparison, this is a cheaper multiple than Google and even print media (newspapers have declining top line and shrinking margins). Also, recent internet acquisitions have been going for x20-25 EBITDA, just to put the valuation in perspective. If Yahoo's EBITDA increases to $2.3B in 2008 (average Street estimate, probably overoptimistic), you are paying x7 multiple. Simple math, as I said.
  2. JNPR

    Sell Buy
    38.3423 33.3108
    39.2841 32.4463
    40.2260 31.5817
    Date 11/12/2007


    Sell Buy
    24.7175 20.7932
    25.5102 19.9989
    26.3028 19.2047
    Date 10/10/2007


    Sell Buy
    23.1857 20.1206
    23.8173 19.5209
    24.4489 18.9212
    Date 11/28/2007

    Sell Buy
    28.6586 25.0271
    29.3156 24.2942
    29.9725 23.5613
    Date 10/22/2007
  3. did the weekly for you

    Sell Buy
    30.6737 16.3985
    34.0783 13.5451
    37.4829 10.6916
    Date 11/18/2007

    Maybe from 16.5 for next year
  4. xxxskier

    xxxskier Guest

    not sure what your point is.

    be careful though....its a new game with yhoo.
  5. Interesting analysis.

    Now for part 2, can you show a historic correlation in where forward PE to growth ratios are a less effective means of valuing stock price than FCF? Should this be a holy grail of stock valuation instead? Show examples of how FCF has correctly helped price a great entrance that delivered ???

    I guess the market perceives the excess FCF as an example of a business that is not being managed properly (ie perhaps there is a perception that yahoo should be shoveling excess cash into capex), so it is penalizing the growth multiple.

    If the market as a whole doesn't see what you see, then even though your points are good, does it matter [thus it not being tradable]? (ie, there are some stock prices which I've never understood that *have* held up thru time despite obvious perceived overvaluation in the forward PE to growth paradigm: CRM, AMZN, etc)

    Plenty of companies have plenty of cash (and cashflow) and stalling growth, and their stocks do poorly.
  6. xxxskier

    xxxskier Guest

    well, what did it for me was seeing the yhoo president make an insider buy in August, she spent 1M cash to buy shares. around the same time a BOD member spent about 500k cash buying shares. sure, insiders don't have perfect track records, but then again who does?
  7. how long are you already and from where and for how long?

  8. yhoo is garbage avoid
  9. xxxskier

    xxxskier Guest

    been long since 10/06. do a search on ET and you'll see my posts abaaout yhoo last year.

    i have added to my posituion along the way since 10/06. this is a very long-term hold for me. i don't plan on selling it for long time. my sense is that they either get their act together and go up on their own, or they get bought out. i could be wrong, but i'm willing to find out.
  10. average down to $8
    #10     Sep 17, 2007