Susan Decker, CFO for Yahoo, threw out financial metrics during yesterday’s conference call that are usually applied to value stocks. Is she nuts? On the surface, Yahoo trades at 60x 2006 GAAP EPS. How can one suggest 60x earnings falls into the value camp?
Investors should remember that Yahoo is down big from its peak price of $43.66 in January of this year, a 24% decline. This brought the market cap to about $49 billion. The company is expected to end 2007 with about $4.0 billion in cash on its balance sheet after adjusting for debt and owns a 34% stake in Yahoo! Japan worth about $12.4 billion. (Yahoo! Japan is doing very well against competitors in its market.) Take out another $1.4 billion for Yahoo’s stake in Alibaba, the Chinese portal, and this brings you down to an enterprise value of about $31 billion. Wow! that is not the bubble valuation that I remember.
Take that $31 billion and compare that to an EBITDA estimate of $2.6 billion and you get an enterprise value to EBITDA valuation of 12x 2007 estimate. That’s not too bad for a company growing its EBITDA 20% per year.
In the 1980s and 1990s that was the mid-valuation range for high-growth media companies such as wireless, cable and radio. Maybe CFO Decker was right to subtlely throw out some old-fashioned value-investor metrics.
Whether you want to classify Yahoo as a value stock or not, its operating performance for the quarter was solid. It is going to host an analyst day on May 7th at which time it is going to announce a new ad revenue model. It appears that Yahoo’s management feels comfortable enough with its business model to make such an important change. In addition, management mentioned it was confident it can keep Yahoo growing for the next few years. There appears to be plenty of substance behind today’s rally.
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