BUSINESS BLOGS
BUSINESS BLOGS
category: business
22 Jun 2008

A long time ago - and I mean long before the MSFT song and dance - I asked if YHOO should go private, on the basis that by 2010, they could be spun off again and be worth far more, roughly $100B, to be precise.

In 2008, Yahoo! will make over $7B in revenues… so increasingly, my math does not seem all that off.  Here’s the math from my post long ago:

Yahoo! could be generating revenues of $9 to $18 billion in 2010.

Its profit margin was 24% and 36% in 2004 and 2005 respectively. Say it can maintain margins of 25% (hey, they won’t be hiring as aggressively as Google and there is only so much purple paint out there), this means that it can be generating profits of $2.5 to $5 billion per year, at a P/E of 25 (it’s now at 33 today), that’s a market cap of $62.5 billion to $125 billion in 2010, or an average of $93.75 billion.

With those kinds of revenues and margins, it will have more than $10 billion in cash, so a market cap of just over $100 billion.

Reading Michael Arrington’s latest tearing into Jerry Yang, I wonder,

- with its stock hovering at $22,
- a market cap of $30B
- an enterprise value of $28.23B,
- capitulation in search to Google,
- sale to Microsoft been kiboshed,

I think Yahoo! should go private.  The argument against the private equity route is the credit market, but Yahoo! is an amazing company with top notch assets.  The problem has been its culture, its people, and its lack of execution.  Those are all fixable things.

But the going private route is now one of necessity:

So long as YHOO and GOOG compete for investors’ money, GOOG will perform better than YHOO… the specter of YHOO’s stock at $20, then $18, then $15 is not something that will help employee morale, recruitment, or retention.  Look at what happened this week.

More importantly, Jerry Yang has made it clear that he has no interest to manage the company for shareholders, he wants to run it for himself.

As an entrepreneur, I understand where he’s coming from, though I disagree and believe his actions have been unethical.  But he’s not a Saint, he’s an entrepreneur, builder and business person and if he wants to maintain control of the steering wheel, hey, what can others do.

Shareholders can vote with their stock: I did, I sold at $28-30.

Employees can vote with their loyalty: you saw what happened this week.

I don’t think Jerry Yang would find enough suitors to match MSFT’s $45B offer… that is moot now.  But with an enterprise value of $28B and nothing exciting on the horizon, would most shareholders really balk at a $35B offer to go private?  I think most would go for it… that would be the last step in Yang’s journey for full control of the company.  Of course, he would not have full control, but he would buy time - lots of it - to do whatever it is that he wants to do.  And if he does not, well, he’ll have a bunch of private bankers to deal with…