Re: [MLUG - DISCUSSION] News Alert: Microsoft Says It Is Withdrawing Bid for Yahoo (fwd)

["Jonathan King" <EMAIL:PROTECTED>]

On 5/5/08, Mike Miller <EMAIL:PROTECTED> wrote:
> On Sun, 4 May 2008, Jonathan King wrote:
>
> > I doubt that Yahoo is worth even $25 per share.
> >
>
> Why?  If we look back over recent years they have almost always sold for
> more than $25/share.

But it's hard to see why. Rationally, a stock is worth the net present
value of its cash stream to shareholders. Yahoo pays no dividend, and
is unlikely to in the near future.I don't think they are sitting on a
wad of cash, so that can't be the source of value. As it happens, the
value of Yahoo is predicated on either it eventually starting to pay
dividends *or* it being acquired by another company. With neither
thing now very likely to happen soon, I'm not sure what's pumping up
its stock price. Sure enough, it's falling pretty hard today.

> > The important outcome here is that Microsoft didn't over-pay for something
> they really didn't need. That's probably good for them, but I'm not really
> sure what their long-term prospects are really like. These days MS is an OS
> monopoly with fraying margins, an applications monopoly with fraying
> margins, a big player in the video game console market (but that's not a
> very high margin business), the purveyor of some big-time enterprise
> software (e.g., Exchange), and a few bits and pieces here and there
> (including a big wad of cash). It was very unclear to me what MS would gain
> from buying Yahoo.
> >
>
> How does Yahoo make money?  I thought they had the biggest internet business
> right now with most ads being managed by them.  Isn't that so?

I don't think so. They do have an advertising business, but its long
term prospects are not, I don't think, as bright as Google's. When you
are looking for the value of a company, you have to think about how
this is going to put cash in my pocket. I admit that I haven't spent a
lot of time looking at Yahoo specifically, but it's not obvious to me
that their valuation isn't extremely generous at the moment, which is
also true for a *lot* of tech stocks, including some that have a lot
more going for them (e.g., Google, Apple).

jking

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