The Great Debate

Forget Microsoft, Yahoo’s value is overseas

Eric Auchard

Aug 25, 2009 11:58 EDT

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The fate of Yahoo Inc has become intertwined in the public’s imagination with the success or failure of its dealings with Microsoft Corp in recent years.

That’s despite the fact that as much as 70 percent of the value investors put on Yahoo’s depressed shares are tied up in its international assets or cash holdings — factors that have nothing to do with Microsoft.

Yahoo’s operations trade for just $5 to $6 per share out of its current $15 share price, once you exclude its Asian investments and the value of its cash. Its hidden assets in Japan and Chinese affiliates — Yahoo Japan Corp and China’s Alibaba Group — alone are worth around $6 to $7 per share.

The trouble is that Yahoo needs to find a way to cash out of its increasingly rocky relationship with Alibaba Group, in which it holds a 39 percent stake after it pulled back from operating its own business in China in 2005.

Yahoo’s best chance here may come next year if Alibaba succeeds with a second IPO of its Taobao.com consumer ecommerce site, building on the success of the 2007 IPO of Alibaba.com, now valued at more than US$13 billion on the Hong Kong exchange.

Truth be told, Yahoo’s huge success in building the biggest U.S. Internet media destination never translated very well overseas, despite the early foray into Asia that left it with lucrative assets in Japan and China. These passive investments came to substitute for a global operating strategy.