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Valuing Yahoo! in 2013

Harvard Business School Case 214-048
Courseware 9-215-709
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Exhibit 1 - YHOO Income Statement

12 Months Ending
2009
2010

2007

2008

6,969
2,839
4,131
59%
41%
2,244
1,084
107
3,435
83%
695

7,209
3%
3,023
4,185
58%
42%
2,268
1,222
88
3,578
85%
607

6,460
-10%
2,872
3,589
56%
44%
1,826
1,210
39
3,075
86%
514

6,325
-2%
2,682
3,643
58%
42%
1,752
1,029
32
2,812
77%
830

4,984
-21%
1,587
3,397
68%
32%
1,619
919
34
2,572
76%
825

Net Interest Income / (Expense)

Other non-operating Income / (Expenses)

94
175

77
(1)

22
289

23
613

19
461

42
5,046

Net Interest Income / (Expense)

Other non-operating Expenses

Pre-tax Income

965

684

825

1,466

1,304

5,891

Pre-tax Income

Total Net Income

639

419

598

1,232

1,049

3,945

Total Net Income

Amort.exp/Revenue
R&D Exp/Revnue
SGA Exp/Revenue
Revenue by Segment

2%
16%
32%

1%
17%
31%

1%
19%
28%

1%
16%
28%

1%
18%
32%

1%
18%
33%

2011
2,160
1,853
971
4,984

2012
2,143
1,886
958
4,987

(USD, Millions)
Revenue
Revenue Growth
Cost Of Goods Sold
Gross Profit
Gross margin
Selling General & Admin Exp.
R & D Exp.
Amort. of Goodwill and Intangibles
Total Operating Expenses
Operating Income(EBIT)

(USD, Millions)
Display
Search
Other
Total
Gross Margin
Cost percentage of Sales

(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit
Selling General & Admin Exp.
R & D Exp.
Amort. of Goodwill and Intangibles

2008
2,043
3,754
1,412
7,209
68%
32%
2012

4,987
1,621
3,366
1
1,642
886
36

12 Months Ending
2009
2010
1,867
2,155
3,396
3,162
1,197
1,008
6,460
6,325

2011

2012
(USD, Millions)
4,987
Revenue
0%
1,621
Cost Of Goods Sold
3,366
Gross Profit
68%
32% 100%
### 100%
1,642
Selling General & Admin Exp.
886
R & D Exp.
36
Amort. of Goodwill and Intangibles
2,563
Total Operating Expenses
76%
803
Operating Income

2013

2014

2015

2016

2017

7,209
3,023
4,185

6,460
2,872
3,589

6,325
2,682
3,643

4,984
1,587
3,397

4,987
1,621
3,366

2,268
1,222
88

1,826
1,210
39

1,752
1,029
32

1,619
919
34

1,642
886
36

2,563

3,578

3,075

2,812

2,572

2,563

803

607

514

830

825

803

Net Interest Income / (Expense)

Other non-operating Income / (Expenses)

42
5,046

77
(1)

22
289

23
613

19
461

42
5,046

Pre-tax Income

5,891

684

825

1,466

1,304

5,891

Total Net Income

3,945

419

598

1,232

1,049

3,945

Total Operating Expenses

Operating Income

Quarterly Financials
Q2 2012
Q3 2012

Q3 2011

Q4 2011

Q1 2012

Q4 2012

Q1 2013

Q2 2013

1,217

1,324

1,221

1,218

1,202

1,346

415
802

395
807

412
934

33%
410
228
10
648
79%
175

34%
409
200
10
618
77%
184

33%
405
217
8
630
78%
177

31%
419
240
8
667
71%
267

1,140
-7%
344
796
30%
30%
390
220
7
617
78%
179

1,135
-7%
336
800
30%
30%
418
236
8
663
83%
137

384
833

419
905

398
823

32%
420
229
8
658
79%
175

32%
402
236
9
646
71%
259

4
176

5
116

169

4
67

9
4,749

23
67

26
216

24
225

354

379

344

255

4,935

357

421

385

293

296

286

227

3,160

272

390

331

34%

34%
18%
1%

35%
20%
1%

32%
18%
1%

35%
20%
1%

35%

30%

34%

Exhibit 1
Key Assumptions

1
2
4
5
6
7
8

0
2013
5%
30%
35%
1%
18%
35%
8.89%

1
2014
4%
30%

2
2015
4%
30%

12 Months Ending
0.5
1.5
2012
2013
2014

2.5
2015

Revenue Growth
Cost percentage of Revenue
Effective tax rate
Amort./Revenue
R&D Exp/Revenue
SGA Exp/Revenue
Discount Rate

FCFF Calculations

Plus
Minus

Nth Year
Year
(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit

6,969
2,839
4,131

7,318
2,195
5,122

7,610
2,283
5,327

7,915
2,374
5,540

Selling General & Admin Exp.

R & D Exp.
Amort. of Goodwill and Intangibles
Total Operating Expenses

2,244
1,084
107
3,435

2,561
1,317
73
3,952

2,664
1,370
76
4,110

2,770
1,425
79
4,274

695

1,171
761

1,218
791

1,266
823

73

76

79

834

868

902

0.8801
764

0.8082
729

Operating Income(EBIT)
NOPAT
Depreciation
Amort.
CapEx
Net change in WC
FCFF
Terminal Value
Discount Factor
PV of FCFF
PV of TV
NPV(Year2014 and after)

10,637

NPV of Yahoo! Core

10,898

Exhibit 3
Sensitivity Analysis
Growth starting from 2019

Discount
Rate

10,898
8.00%
8.45%
8.89%
9.33%
9.78%

-5%
8,708
8,392
8,097
7,820
7,561

-3%
9,712
9,308
8,935
8,589
8,267

0%
12,158
11,495
10,898
10,359
9,868

3%
17,540
16,092
14,862
13,805
12,887

3
2016
4%
30%

4
2017
4%
30%

5
2018
4%
30%

6
2019
0%
30%

3.5
2016

4.5
2017

5.5
2018

6.5
2019

8,231
2,469
5,762

8,561
2,568
5,993

8,903
2,671
6,232

8,903
2,671
6,232

Nth Year
Year
(USD, Millions)
Revenue
Cost Of Goods Sold
Gross Profit

2,881
1,482
82
4,445

2,996
1,541
86
4,623

3,116
1,603
89
4,808

3,116
1,603
89
4,808

Selling General & Admin Exp.

R & D Exp.
Amort. of Goodwill and Intangibles
Total Operating Expenses

405
217
8
630

1,317
856

1,370
890

1,425
926

1,425
926

177
115

82

86

89

89

938

976

1,015

0.7422
697

0.6816
665

1,015
11,417
0.6260
635
7,147

Operating Income(EBIT)
NOPAT
Depreciation
Amort.
CapEx
Net change in WC
FCFF

1
2
4
5
6
7
8

Revenue Growth
Cost percentage of Revenue
Effective tax rate
Amort./Revenue
R&D Exp/Revenue
SGA Exp/Revenue
Discount Rate

1,202
395
807

123

Discount Factor
PV of FCFF
NPV(Q3&Q4 2013)

2019

Q3 2012

261

5%
27,106
23,603
20,901
18,753
17,004

-7%
30%
35%
1%
18%
35%
8.89%

Q4 2012

0.25
0.5
Q3 2013 Q4 2013

1,346
412
934

1,118
335
782

1,252
375
876

419
240
8
667

391
201
11
604

438
225
13
676

267
173

179
116

200
130

11

13

181

127

143

0.9789
125

0.9583
137

Exhibit 2
Discount Rate Calculation
effective tax rate

35%
Sh. Price

MVE2 LT Debt
29,877
-

YHOO

27.68

YHOO - Adjusted1

27.68

29,877

GOOG
MSFT
AOL
FB
EBAY
AMZN
BIDU

$
$
$
$
$
$
$

910.70
32.01
37.15
26.04
52.31
303.48
110.01

302,790
268,084
2,857
62,678
67,846
138,387
38,476

D/E

1,989
15,600
1,500
4,123
3,042
1,895

0.01
0.06
0.00
0.02
0.06
0.02
0.05
Average Asset Beta

Assume Yahoo's asset beta is at the level of industry average.

Yahoo
Asset Beta
1.07
Rf-30-year
3.55%
Rm-Rf
5% Assume
Required return
8.89%

Equity
Beta4
0.99

Asset
Beta

0.99
0.99
0.79
1.03
n/a
1.07
1.07
1.27

0.98
0.76
1.03
n/a
1.03
1.05
1.23

Average Asset Beta

1.07

Exhibit 4: Valuation of Alibaba based on Mayer's 2012 deal

Yahoo!'s Total Stake in Alib

Stake Sold
Remaining Stake

Billion
42%
###
18% 7.10000
24%

Total Value of Stake in Alibaba in May 2012

39.44444

Exhibit 5: Valuation of Alibaba based on IPO

Capital Gain Tax Rate

37%
BillionTax Basis
120.00000

IPO Valuation
Remaining Stake in Alibaba in July 2
Capital Gain Tax
After Tax Value

28.80000
10.42771 0.61700
18.37229

Yahoo Stock Performance from May 2012 to July 2013

25%
Exhibit 6: Valuation of Yahoo! Japan based on Market Capital
Total Value of Stake in Alibaba in July 2013
49.30556
Capital Gain Tax Rate

Capital Gain Tax Rate

37%

37%

BillionTax Basis
32.80000

Market Capitalization
Billion Tax Basis
Remaining Stake in Alibaba in July 201
###
Capital Gain Tax
4.15004
0.61700
After Tax Value
7.68329

Stock Ownership
Capital Gain Tax
After Tax Value

35%

11.48000
3.41362 2.25400
8.06638

Market Capitalization