Combined Valuing Yahoo! in 2013

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Valuing Yahoo! in 2013

Harvard Business School Case 214-048
Courseware 9-215-709
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Exhibit 1 - YHOO Income Statement
12 Months Ending
2009
2010
2007
2008
6,969
2,839
4,131
59%
41%
2,244
1,084
107
3,435
83%
695
7,209
3%
3,023
4,185
58%
42%
2,268
1,222
88
3,578
85%
607
6,460
-10%
2,872
3,589
56%
44%
1,826
1,210
39
3,075
86%
514
6,325
-2%
2,682
3,643
58%
42%
1,752
1,029
32
2,812
77%
830
4,984
-21%
1,587
3,397
68%
32%
1,619
919
34
2,572
76%
825
Net Interest Income / (Expense)

Other non-operating Income / (Expenses)
94
175
77
(1)
22
289
23
613
19
461
42
5,046

Other non-operating Expenses
Pre-tax Income
965
684
825
1,466
1,304
5,891
Pre-tax Income
Total Net Income
639
419
598
1,232
1,049
3,945
Total Net Income
Amort.exp/Revenue
R&D Exp/Revnue
SGA Exp/Revenue
Revenue by Segment
2%
16%
32%
1%
17%
31%
1%
19%
28%
1%
16%
28%
1%
18%
32%
1%
18%
33%
2011
2,160
1,853
971
4,984
2012
2,143
1,886
958
4,987
(USD, Millions)
Revenue
Revenue Growth
Cost Of Goods Sold
Gross Profit
Gross margin
Selling General & Admin Exp.
R & D Exp.
Amort. of Goodwill and Intangibles
Total Operating Expenses
Operating Income(EBIT)
(USD, Millions)
Display
Search
Other
Total
Gross Margin
Cost percentage of Sales
(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit
R & D Exp.
2008
2,043
3,754
1,412
7,209
68%
32%
2012
4,987
1,621
3,366
1
1,642
886
36
12 Months Ending
2009
2010
1,867
2,155
3,396
3,162
1,197
1,008
6,460
6,325
2011
2012
(USD, Millions)
4,987
Revenue
0%
1,621
Cost Of Goods Sold
3,366
Gross Profit
68%
32% 100%
### 100%
1,642
886
R & D Exp.
36
2,563
76%
803
Operating Income
2013
2014
2015
2016
2017
7,209
3,023
4,185
6,460
2,872
3,589
6,325
2,682
3,643
4,984
1,587
3,397
4,987
1,621
3,366
2,268
1,222
88
1,826
1,210
39
1,752
1,029
32
1,619
919
34
1,642
886
36
2,563
3,578
3,075
2,812
2,572
2,563
803
607
514
830
825
803

Other non-operating Income / (Expenses)
42
5,046
77
(1)
22
289
23
613
19
461
42
5,046
Pre-tax Income
5,891
684
825
1,466
1,304
5,891
Total Net Income
3,945
419
598
1,232
1,049
3,945

Operating Income
Quarterly Financials
Q2 2012
Q3 2012
Q3 2011
Q4 2011
Q1 2012
Q4 2012
Q1 2013
Q2 2013
1,217
1,324
1,221
1,218
1,202
1,346
415
802
395
807
412
934
33%
410
228
10
648
79%
175
34%
409
200
10
618
77%
184
33%
405
217
8
630
78%
177
31%
419
240
8
667
71%
267
1,140
-7%
344
796
30%
30%
390
220
7
617
78%
179
1,135
-7%
336
800
30%
30%
418
236
8
663
83%
137
384
833
419
905
398
823
32%
420
229
8
658
79%
175
32%
402
236
9
646
71%
259
4
176
5
116
169
4
67
9
4,749
23
67
26
216
24
225
354
379
344
255
4,935
357
421
385
293
296
286
227
3,160
272
390
331
34%
34%
18%
1%
35%
20%
1%
32%
18%
1%
35%
20%
1%
35%
30%
34%
Exhibit 1
Key Assumptions
1
2
4
5
6
7
8
0
2013
5%
30%
35%
1%
18%
35%
8.89%
1
2014
4%
30%
2
2015
4%
30%
12 Months Ending
0.5
1.5
2012
2013
2014
2.5
2015
Revenue Growth
Cost percentage of Revenue
Effective tax rate
Amort./Revenue
R&D Exp/Revenue
SGA Exp/Revenue
Discount Rate
FCFF Calculations
Plus
Minus
Nth Year
Year
(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit
6,969
2,839
4,131
7,318
2,195
5,122
7,610
2,283
5,327
7,915
2,374
5,540

R & D Exp.
2,244
1,084
107
3,435
2,561
1,317
73
3,952
2,664
1,370
76
4,110
2,770
1,425
79
4,274
695
1,171
761
1,218
791
1,266
823
73
76
79
834
868
902
0.8801
764
0.8082
729
NOPAT
Depreciation
Amort.
CapEx
Net change in WC
FCFF
Terminal Value
Discount Factor
PV of FCFF
PV of TV
NPV(Year2014 and after)
10,637
NPV of Yahoo! Core
10,898
Exhibit 3
Sensitivity Analysis
Growth starting from 2019
Discount
Rate
10,898
8.00%
8.45%
8.89%
9.33%
9.78%
-5%
8,708
8,392
8,097
7,820
7,561
-3%
9,712
9,308
8,935
8,589
8,267
0%
12,158
11,495
10,898
10,359
9,868
3%
17,540
16,092
14,862
13,805
12,887
3
2016
4%
30%
4
2017
4%
30%
5
2018
4%
30%
6
2019
0%
30%
3.5
2016
4.5
2017
5.5
2018
6.5
2019
8,231
2,469
5,762
8,561
2,568
5,993
8,903
2,671
6,232
8,903
2,671
6,232
Nth Year
Year
(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit
2,881
1,482
82
4,445
2,996
1,541
86
4,623
3,116
1,603
89
4,808
3,116
1,603
89
4,808

R & D Exp.
405
217
8
630
1,317
856
1,370
890
1,425
926
1,425
926
177
115
82
86
89
89
938
976
1,015
0.7422
697
0.6816
665
1,015
11,417
0.6260
635
7,147
NOPAT
Depreciation
Amort.
CapEx
Net change in WC
FCFF
1
2
4
5
6
7
8
Revenue Growth
Cost percentage of Revenue
Effective tax rate
Amort./Revenue
R&D Exp/Revenue
SGA Exp/Revenue
Discount Rate
1,202
395
807
123
Discount Factor
PV of FCFF
NPV(Q3&Q4 2013)
2019
Q3 2012
261
5%
27,106
23,603
20,901
18,753
17,004
-7%
30%
35%
1%
18%
35%
8.89%
Q4 2012
0.25
0.5
Q3 2013 Q4 2013
1,346
412
934
1,118
335
782
1,252
375
876
419
240
8
667
391
201
11
604
438
225
13
676
267
173
179
116
200
130
11
13
181
127
143
0.9789
125
0.9583
137
Exhibit 2
Discount Rate Calculation
effective tax rate
35%
Sh. Price
MVE2 LT Debt
29,877
-
YHOO
27.68
YHOO - Adjusted1
27.68
29,877
GOOG
MSFT
AOL
FB
EBAY
AMZN
BIDU
$
$
$
$
$
$
$
910.70
32.01
37.15
26.04
52.31
303.48
110.01
302,790
268,084
2,857
62,678
67,846
138,387
38,476
D/E
1,989
15,600
1,500
4,123
3,042
1,895
0.01
0.06
0.00
0.02
0.06
0.02
0.05
Average Asset Beta
Assume Yahoo's asset beta is at the level of industry average.

Yahoo
Asset Beta
1.07
Rf-30-year
3.55%
Rm-Rf
5% Assume
Required return
8.89%
Equity
Beta4
0.99
Asset
Beta
0.99
0.99
0.79
1.03
n/a
1.07
1.07
1.27
0.98
0.76
1.03
n/a
1.03
1.05
1.23
Average Asset Beta
1.07
Exhibit 4: Valuation of Alibaba based on Mayer's 2012 deal
Yahoo!'s Total Stake in Alib

Stake Sold
Remaining Stake
Billion
42%
###
18% 7.10000
24%
Total Value of Stake in Alibaba in May 2012

39.44444
Exhibit 5: Valuation of Alibaba based on IPO

Capital Gain Tax Rate
37%
BillionTax Basis
120.00000
IPO Valuation
Remaining Stake in Alibaba in July 2
Capital Gain Tax
After Tax Value
28.80000
10.42771 0.61700
18.37229
Yahoo Stock Performance from May 2012 to July 2013

25%
Exhibit 6: Valuation of Yahoo! Japan based on Market Capital
Total Value of Stake in Alibaba in July 2013
49.30556
37%
37%
BillionTax Basis
32.80000
Market Capitalization
Billion Tax Basis
Remaining Stake in Alibaba in July 201
###
Capital Gain Tax
4.15004
0.61700
After Tax Value
7.68329
Stock Ownership
Capital Gain Tax
After Tax Value
35%
11.48000
3.41362 2.25400
8.06638
Market Capitalization

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Valuing Yahoo! in 2013

Exhibit 1 - YHOO Income Statement

Net Interest Income / (Expense)

Net Interest Income / (Expense)

Total Net Income

Total Net Income

Net Interest Income / (Expense)

Total Net Income

Total Operating Expenses

Selling General & Admin Exp.

NPV of Yahoo! Core

Selling General & Admin Exp.

Assume Yahoo's asset beta is at the level of industry average.

Average Asset Beta

Exhibit 4: Valuation of Alibaba based on Mayer's 2012 deal

Yahoo!'s Total Stake in Alib

Total Value of Stake in Alibaba in May 2012

Exhibit 5: Valuation of Alibaba based on IPO

Yahoo Stock Performance from May 2012 to July 2013

Capital Gain Tax Rate

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