Events might finally be breaking right for Yahoo! (YHOO), which has an ace up its sleeve, according to analysts at Oppenheimer, in the form of its stake in Chinese online retail company Alibaba (BABA).
The analysts maintained an Outperform rating on Yahoo! shares Wednesday while also raising the price target to $49 from $40 based on valuation.
Oppenheimer calculated the value of Yahoo!'s stake in Alibaba at $28 billion, based on the company's 15% ownership stake, up from its previous valuation of $22 billion.
"We believe Yahoo! shares are undervalued based on the publicly traded valuation of Alibaba and Yahoo! Japan. However, core-Yahoo! has been in a secular decline as advertisers have shifted to social, video and programmatic advertising," analysts at the firm wrote.
In early 2015, CEO Marissa Meyer announced that the company intended to sell its 384-million-share stake in Alibaba to avoid the cumbersome U.S. capital gains tax. By December, however, Yahoo! reversed that decision, instead announcing it would spin off its core Internet businesses amid flagging advertising revenue.
The value of the assets the company is looking to divest could range between $4 billion and $8 billion, according to what Cantor Fitzgerald analyst Youssef Squali told the Wall Street Journal today. Earlier this month analysts at Forbes valued the company's Internet business at $4.1 billion, while also valuing Yahoo! Japan at roughly $8.25 billion.
It has been widely reported that Verizon (VZ) is in the lead to win the bid for the assets. The company is set to advance to the second stage of bidding, according to Reuters. Private equity firms Apax Partners, TPG Capital, Bain Capital, Apollo Global Management and Warburg Pincus have also been identified as interested parties.
The stock was climbing close to 3% Wednesday afternoon on heavy volume following the release of its latest quarterly financial results. Though the company's top- and bottom-line beat would seem like a plus while it is in the midst of negotiations to sell its Web business, Yahoo! reported an 18% decline in revenue during the quarter. Yahoo! generated $859.4 million in revenue during the quarter, failing to reach the $1 billion mark for the first time since CEO Marissa Mayer took over almost four years ago.
"While Yahoo! still has a large traffic base, the company needs to restructure its costs to leverage ad technology and reduce headcount. Long-term we see strategic value to a large media or communications company," Oppenheimer's note read.
Real Money's Jim Cramer sees what would remain of the company as still being valuable. "They do have some customers. Yahoo! Finance does well. Yahoo! Sports does well. It's worth something," Cramer commented on CNBC Wednesday morning.
Holding on to Alibaba has proved to be one of the shrewdest moves Meyer has made during her tenure. While revenue continues to fall, Yahoo!'s plan to restructure while also holding on to its Alibaba stake for the foreseeable future has Oppenheimer remaining bullish on the company.
