Where Will Yahoo! Go Next?

 | Sep 12, 2013 | 12:24 PM EDT
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Yahoo! (YHOO) broke $30 this morning. What's interesting about the $30 level is that Yahoo!'s stock price never closed above $30 back in the early days of 2008 after Microsoft (MSFT) made a bid for the company.

It did make an intraday high of $30.25 on February 14, 2008. If you recall, that was a couple of weeks after the bid from Microsoft for the whole company. Back in those heady days, Yahoo! investors (and the board, led by Roy Bostock) were greedy and thinking that they could get an even higher bid from Mr. Softee. They were wrong.

Fast forward to today. It looks as though Yahoo! might actually close above $30 today. If so, where does it go from here?

As I said on CNBC's "Fast Money" last night, I think there's still a good $10 to even $15 move in the stock even though it has doubled in the last year. Why? Yahoo! has always has been a sum-of-the-parts story and that's still the case now.

The company's stake in Alibaba is considered to be worth about $11.40 per share after taxes at a $70 billion valuation. But there is a good chance (in my view) that Alibaba might rise to $120 billion by next year after its initial public offering (IPO). That could be an incremental $4.10 per share for Yahoo!, which only has to sell half its stake in the IPO.

Its Yahoo! Japan stake is worth about $7 billion today or $7 per share after taxes. It has about $3 a share in cash. This means that Yahoo!'s "core business" is worth about $7.80 per share or 5x its earnings before interest, taxes, depreciation and amortization (EBITDA).

So, here's where the upside is:

  • Alibaba might IPO at a $70 billion valuation but it could also be worth $120 billion by next spring. There's an incremental $4 a share from that.
  • Yahoo! appears to be working to monetize both its Alibaba and Yahoo! Japan stakes in a tax-efficient way. If it does, that could create another $5-$7 per share in value overnight.
  • That's about $10 per share in appreciation that you could see in six months if this breaks right.
  • Everyone says "the core is struggling." That's true in display, but I'd say current pricing has already included those challenges. If Tumblr starts delivering revenue, there could  probably be another $3 per share in upside from the core business.
  • So, if the cash-rich split off and the Tumblr turnaround scenario happen, YHOO could be trading above $40 by next spring.

This is why I'm sticking with the long position, even at $30.

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