Why Yahoo’s Core Business is Selling for $10B: A Deeper Analysis
The recent announcement of Yahoo selling its core business for around $10 billion highlights a complex financial and strategic decision. This move reflects the current market valuation of Yahoo's core assets excluding its stake in Alibaba and its other substantial holdings.
The market currently values the core Yahoo business at zero dollars when one backs out the cash, Yahoo Japan’s stake, and Alibaba ownership. Despite this valuation, Yahoo's assets, particularly its stake in Alibaba, are reportedly worth more than Yahoo's stock valuation. Therefore, selling the core business for $10 billion will likely make investors more money than selling Yahoo's stock.
Market Valuation and Strategic Decisions
Intuitively, it might seem that selling off the core business is a strategic miscalculation. However, the decision is driven by the market valuation. If an asset is valued at zero by the market, it's no surprise that selling it at $10 billion seems like a good deal. The only rationale for this decision would be the desire to make money off it. At this juncture, Yahoo's owners are opting for the cash and leaving the profitability of the core business to another entity.
Fundamental Brand Identity
The main reason behind this sale lies in a broader issue: Yahoo's fundamental brand identity. The core of any major consumer brand is its market value. No amount of investments or personnel changes can alter this. It's far better to excel at what one's brand stands for than to emulate others.
Yahoo has been chasing a series of tech giants, including Google, Facebook, YouTube, and Twitter, in an attempt to capture some of their brand halos. This strategy has been futile. This can be contrasted with AOL, where Tim Armstrong embraced the brand's identity and made the product work for its customers. He also sold off some intellectual property to fund the business, ultimately securing a good deal with Verizon.
Commitment to Core Products
Yahoo needs to prioritize its core products rather than competing against its rivals. Unfortunately, Yahoo has been neglecting some of its core offerings, such as Yahoo Mail. Yahoo Mail has become almost unusable, a stark contrast considering Yahoo has 8000 employees. The issue isn't a lack of resources but a series of poorly executed acquisitions and hires aimed at remaking Yahoo. Instead of being remade, Yahoo should focus on making its core products function flawlessly.
Conclusion
The sale of Yahoo's core business for $10 billion is driven by the market valuation and strategic positioning. Yahoo must now focus on its core market and products, and embrace its brand identity to regain its footing in the tech industry.