There has been a lot of buzz about Alibaba lately. Their upcoming IPO is set to make a few people billionaires and many more millionaires. It may in fact be the biggest IPO ever in recent history. Analysts estimate the company is worth between $136 to $250 Billion. Within technology companies this puts Alibaba’s worth below Apple, Google and Microsoft and on the lower end, just under Facebook and Qualcomm.
For those not familiar with Alibaba, it is the Chinese version of Google, Amazon, Ebay, and Youtube combined. Among its early investors include Japanese based Softbank and Yahoo. Softbank CEO and founder Masayoshi Son recently bought Sprint in the United States and is looking to also acquire T-Mobile. Son was an early investor Yahoo and owns the majority of Yahoo Japan. Son was instrumental in also convincing Yahoo to invest in Alibaba. In 2005 Yahoo invested $1 billion in Alibaba for a 40% stake.
Softbank currently owns ~34% of Alibaba and Yahoo owns ~23%. In 2012 Yahoo owned closer to 40% of Alibaba. But tensions between Yahoo and Alibaba soured and the Chinese giant purchased half its stake back for approximately $7.6 billion. Yahoo took some of this money and returned it back to investors and bought out activist investors like Daniel Loeb. The rest of the money funded Marissa Mayer’s shopping spree on startups including the $1 billion purchase of Tumblr.
Alibaba paid Yahoo $561 million in 2012 to license its intellectual property, the filing said. Alibaba is not required to pay licensing fees to Yahoo following the IPO. Last year, the Chinese company also bought patents from Yahoo for $70 million. Yahoo’s remaining 523.6 million shares in Alibaba are currently valued at $26 billion. Yahoo is required to sell 208 million shares in the IPO, worth $10.4 billion based on current estimates.
Yahoo’s stake in Yahoo Japan is valued at $9 billion. Added with the $26 billion Alibaba stake, this comes out to $35 billion. Yahoo’s total market cap is $36.7 billion, meaning it’s core business it worth less than $2 billion. If the Alibaba IPO exceeds expectations Yahoo’s core business could indeed be worthless.
Yahoo’s valuation is primarily based on investments it has in other companies such as Yahoo Japan and Alibaba. Marissa Mayer has not been successful in turning Yahoo around yet and she may want to reconsider her posturing with Microsoft over Bing. For a measly $2 billion someone is likely to acquire Yahoo.