Surprisingly, there is still confusion amongst investors about Yahoo!’s EBITDA multiple with some analysts quoting high single digit multiples while others cite mid-to-low single digit multiples. With this post I will hopefully put to bed that confusion.
We will start with a definition of enterprise value: Market Capitalization plus Debt plus Preferreds plus Minority Interest minus Cash minus non-consolidated investments.
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The confusion with Yahoo! lies with the value of its Asian assets, which are investments in Yahoo! Japan and investments in Alibaba in China, whose values must be subtracted as in the above calculation. But first let’s start with the basic calculation detailed in the following table. The EV/EBITDA multiple without factoring the Asian assets is 9.6x.
Now we value the Asian assets – Yahoo!’s 34% interest In Yahoo! Japan, Yahoo!’s 30% interest in Alibaba.com, and Yahoo!’s 40% interest in Alibaba Group. All stakes are taxed at the standard 40% corporate tax rate consistent with Yahoo!’s CFO’s comments at the recent Analyst Day that the tax basis on those assets are low. In total, we arrive at $8.7 billion in after-tax value for those assets or $6.16 per Yahoo! share.
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Subtracting that value from the unadjusted enterprise value from the first exhibit yields a correct enterprise value for Yahoo! of $7.8 billion. Dividing by the consensus 2010 EBITDA of $1.8 billion yields a 2010 EV/EBITDA multiple of 4.5x.