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Stock Analyst Update

Should You Invest in Altaba?

What's left of the company formerly known as Yahoo has started trading as a closed-end management company.

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Yahoo has officially changed its name to  Altaba (AABA) and began trading on June 19 under the ticker AABA. As we discussed in our June 14 note, Altaba is now a closed-end management company with ownership of shares of Yahoo Japan and Alibaba. The company recently announced that its self-tender offer of repurchasing $3 billion of its shares is likely to be based on a price of $53.20 per share, which is slightly lower than our $55 fair value estimate. Altaba’s post-repurchase lower share count will be offset by the firm’s lower net cash balance, resulting in no impact on our $55 fair value estimate. With no-moat Altaba’s shares trading only at a slight discount to our fair value estimate, we continue to recommend seeking a wider margin of safety.

As mentioned in our June 14 note, our valuation of Altaba is based on Morningstar’s fair value estimate for Alibaba of $148 per ADS and JPY 480 per share for Yahoo Japan. We have also taken into account possible tax liabilities based on unrealized capital gains of those two holdings. Further, we are assuming a potential $448 million liability related to Yahoo’s data breaches, of which Altaba will be responsible for 50%. Last, we have included net cash of $10 billion in our valuation, representing the $4.48 billion received from Verizon and a cash balance of $7 billion reported on Yahoo’s March 2017 balance sheet, partially offset by $1.3 billion in senior convertible notes due in 2018.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.