Yahoo! Inc.: Sale Book Walks Buyers Inside the ‘Dilapidated House’ of YHOO

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If the rumors are true — and there’s probably at least some degree of truth to them — then Yahoo! Inc (YHOO) may be in even bigger trouble that investors realize.

Yahoo Sale Book Walks Buyers Inside the 'Dilapidated House' of YHOOWednesday afternoon, Re/code contributor Kara Swisher reported she was in possession of the so-called “book” of relevant information given to prospective buyers of the beleaguered Yahoo … or at least its core business.

More than the data available in the company’s quarterly filing, this book allegedly offers detailed outlooks about items ranging from projected traffic-acquisition costs (they’re going up) to projected revenue from Yahoo! Japan (they’re going down).

While the extent this book may help a suitor isn’t yet clear, its very existence does speak to how serious Yahoo has gotten about finding a buyer for its core operation.

Unfortunately for YHOO stock holders, if the disclosures are as “confusing” and “confounded” as Swisher suggests, the sale price may well be much lower than the numbers currently being batted around.

Finally Getting a Bead on Yahoo … Sort Of

Take everything you’re about to read with a grain of salt. While Swisher says she has a variety of reports and slides in her possession, she also says she cannot show them. Why? If they’re not supposed to be available to anyone besides potential buyers of Yahoo’s core business, how did she get them?

In spite of that, Re/code has been a reliable source of breaking news and inside information in the past. It’s unlikely Swisher — who is also the executive editor for Re/code — would float a rumor she couldn’t back up.

Whatever the case, the detailed information reveals a good deal of what’s already evident and reasonably expected for the foreseeable future … a deteriorating business that shouldn’t continue to deteriorate into 2016.

For instance, prospective buyers who’ve seen the book see that Yahoo projects a 15% decline in this year’s top line, in conjunction with a 20% year-over-year dip in profits. Specifically, stripping out traffic acquisition costs from the outlook, the company says core revenue is apt to fall from $4.1 billion in 2015 to $3.5 billion this year. EBITDA is expected to slide from just under $1 billion to $750 million. These numbers confirm what analysts were mostly already expecting.

Yahoo (YHOO) revenue and income trend, outlook
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Other red flags include stock-based compensation expenses that aren’t apt to move lower, even though the company’s headcount has shrunk and will continue to do so.

Yet another concern for a would-be buyer: Traffic acquisition costs will likely rise from $875 million last year to $1 billion in 2016, and presumably will continue to rise beyond that.

With all of that being said, even more troubling about this book is the alleged lack of clarity. While the ROI on its traffic acquisition sending is positive, the company will not clarify to what extent it is profitable. Perhaps it’s not worth the bother. Nobody knows.

Similarly obfuscated are some of the company’s costs. Some payroll expenses for employees working on search functionality are booked as a research expense. Meanwhile, the regional profit and loss breakdown isn’t as broken down as a potential owner might like.

Moreover, the word is Yahoo CEO Marissa Mayer and other top management haven’t exactly been forthcoming in discussing matters the book left out. She says she’ll only share more details with those prospective buyers that make it to the second round of the bidding war … if one actually develops.

Bottom Line for Yahoo Stock

On the surface, current YHOO shareholders may be taking some solace knowing that at the very least, Mayer is trying to extract maximum market value for whatever piece of its business it’s looking to sell.

There’s just one problem with that premise — Yahoo needs a buyer more than a buyer needs Yahoo, and if a serious bidder can’t get serious answers to serious questions, it’s unlikely to make a serious offer.

It’s not unlike the real estate market. In a so-called seller’s market, a homeowner can hold out for a really great price, because if one buyer bulks, another one will be along soon enough.

In a buyer’s market, buyers are few and far between and a seller may want to take any reasonable offer he or she can get, because there’s no guarantee another one will be found anytime soon.

Yahoo is acting like it’s in a seller’s market, but for all its woes and grim future, it’s in a buyer’s market. Its insistence on toying with potential buyers may well work against it, and ultimately against the value of Yahoo.

We’ll know more after Monday when the first bids are due.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/yahoo-yhoo-stock-3/.

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