Could ‘Hidden Assets’ At Yahoo Push Up Its Bidding Price?
Yahoo ( YHOO ) has “hidden assets” that could drive up the bidding price for the struggling Web portal, says SunTrust Robinson Humphrey. “Perpetual” royalties from Yahoo Japan, thousands of patents and plentiful real estate could boost Yahoo’s bids, wrote SunTrust analyst Robert Peck in an industry report Wednesday. Those three critical aspects of the company’s valuation “are not well understood and could have material upside to bids, potentially driving them higher than our $6 billion to $8 billion published range,” wrote Peck. SunTrust raised its price target on Yahoo stock to 44 from 40 while maintaining a buy rating on the company. Yahoo stock was down a fraction in afternoon trading in the stock market today , near 37. While the company could bring in $6 billion net after taxes, Peck said, “Investors should expect bids in Round 1 (due Monday) to start lower than this, as bidders aim to bid just enough at first to make it into the next round. In Round 2, the bidding could become more intense and rise to the high end of our range, as we think there are several very qualified buyers.” The royalty stream from Yahoo Japan “is in perpetuity and represents 30% of Yahoo’s core advertising EBITDA (earnings before interest, taxes, depreciation and amortization) in 2016,” Peck wrote. He also said that Yahoo has more than 6,000 patents, “which could be worth more than the $1 billion to $3 billion range the company has cited.” The patents include deriving a user profile from questions and creating a system for customizing a website, according to the U.S. Patent and Trademark Office. And, Peck said, Yahoo owns more than 1 million square feet of building space and real estate that could be worth $1 billion. The company is reportedly is looking to sell a large parcel of undeveloped land near its Sunnyvale, Calif., headquarters that had been slated for possible development, signaling that it has now scrapped the building plan. Yahoo Bids Reportedly Due Monday Yahoo sent a letter to possible buyers last month, asking them to submit bids. Some buyers might be interested in all or part of Yahoo’s core Web business, while others might want Yahoo’s stakes in China e-commerce Alibaba Group ( BABA ) or Yahoo Japan. Yahoo has reportedly set an April 18 deadline for first round bids. Yahoo stock has more than doubled since the company hired Marissa Mayer, who had been a top executive at Alphabet ’s ( GOOGL ) Google, as CEO in July 2012. But she’s been unable to spark significant earnings and revenue growth, and Yahoo has struggled to build online-ad and mobile-ad revenue vs. rivals Google and Facebook ( FB ), among others. In the meantime, the company faces a proxy fight from activist investor Starboard Value, which wants to oust Yahoo’s entire board. An estimated 40 groups have expressed interest in buying all or part of the financially wilting Sunnyvale, Calif.-based Web portal. News site Re/Code said last week that documents Yahoo provided to potential bidders predict that the Web portal’s 2016 revenue will drop by close to 15% and its earnings by more than 20%. Yahoo is axing 15% of its workforce, or about 1,600 jobs. Rumored bidders for Yahoo include the Daily Mail, the British tabloid newspaper that on Monday reportedly confirmed its interest, attracted to Yahoo’s popular news and media properties. The Daily Mail is in preliminary talks with other investors to launch a bid for Yahoo, the Wall Street Journal reported Monday, confirming a previous WSJ report out Sunday. Google reportedly is considering a bid for Yahoo’s core business, as is Verizon Communications ( VZ ). In 2011, Alibaba CEO Jack Ma publicly declared his interest in acquiring Yahoo.