Valuation of Yahoo’s Alibaba stake

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Yahoo buys US$1 billion stake in Alibaba (2005-8-11, China Daily): $1 billion for 40% stake of Alibaba Group (parent company of Alibaba, Taobao and Alipay). Taotao and Alipay is Chinese equivalent of eBay and Paypal, repectively.

Yahoo sells direct stake in (cnet, 2009-9-14). Quote:
Yahoo has sold 1 percent of its stake in the Chinese-based business-to-business trading site, the company said on Monday. Reuters first reported on the story.

In November 2007, Yahoo invested approximately $100 million in when it went public on the Hong Kong Exchange. Writing in an e-mail, a company representative said that Yahoo’s “sale of its shares in is expected to generate pre-tax proceeds of approximately $150 million.”
According to Yahoo, it maintains approximately 40 percent interest in the Alibaba Group. “Alibaba Group owns approximately 70 percent of,” Yahoo wrote in the e-mail, “and as such, Yahoo continues to own an approximately 28 percent indirect interest in”

1% of (1688.HK) = $150 m
28% of = $150 m * 28 = $4,200 m = $4.2 billion

Note this is not the end of calculation, note Alibaba group also owns Taobao and Alipay, both are valuable assets. How to value those? I don’t know exactly. But I noticed eBay market cap is about $27 b today, Baidu $23.5 b, Tencent (QQ, 0700.HK) HKD 272.5 billion (roughly $35 billion). Let’s use $5 billion for the value of Taobao and Alipay stake owned by Yahoo.

Note Yahoo also owns Yahoo Japan (co-owned by Softbank). Yahoo market cap as of today is about $21 billion. Apply 50% discount to the Alibaba $9 billion ($4.2 b + $5 b) stake, that’s $16.5 billion for Yahoo (US and international) + Yahoo Japan. Do I miss anything here? Maybe Alibaba stake is overly optimistic? One thing I noticed is Yahoo is not going to sell its Alibaba stake in the near future (CEO Carol Bartz, Yahoo’s Bartz On Alibaba Stake: ‘Very Good Investment For The Future.

This (intension to hold for long term), plus the size of Yahoo’s stake (40%), makes it unlikely to unload the Alibaba quickly.

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