Morningstar | Altaba Remains Undervalued as We Foresee a Recovery in Alibaba's Stock Price
We continue to value Altaba at $98 per share, based on our view that wide moat-rated Alibaba, which is Altaba's main holding, is meaningfully undervalued as compared with our $240 fair value estimate for Alibaba's U.S. ADR. Morningstar sees Alibaba as attractively priced especially after the firm's investor day in September. We believe this supports our bullish view on Altaba, which is trading at a 0.64 price/fair value, similar to Alibaba's 0.62. We also note that Altaba recently sold its remaining stake in Yahoo Japan from which the proceeds will be allocated toward share buyback, benefiting shareholders.Morningstar's takeaway from Alibaba's investor day event was positive, further supporting our view on and valuation of Altaba. At the event, Alibaba provided numbers that backed up the network effect moat source of the wide-moat name. Plus, we viewed Alibaba's identified future investment priorities as appropriate, supporting Morningstar's projections throughout the next five years. We must also note that some concerns about impact of trade wars and other potential macroeconomic issues on Alibaba were eased.
In addition, as noted earlier, Altaba is taking steps to reward its shareholders after completing the sales of its holdings in Yahoo Japan in September, as it launched a $5.75 billion share buyback program. The firm received a total of $6.3 billion for its Yahoo Japan shares, practically in line with our initial valuation of those holdings.
Our $98 per share fair value estimate for Altaba is based on the discounted fair value estimate of the firm's holdings in Alibaba, plus net cash. The value is discounted due to possible tax liabilities based on unrealized capital gains of that holding.
Altaba is a publicly traded, non-diversified, closed-end management investment company. The company's investment objective is to seek to increase the price per share at which it trades relative to then-existing values of its principal underlying assets (the Alibaba Group Holding Limited (Alibaba) ordinary shares and American Depositary Shares and Yahoo Japan Corporation (Yahoo Japan) shares of common stock). In addition to the Alibaba shares and Yahoo Japan shares, the company also owns investments in certain additional companies Excalibur IP, LLC, which owns a portfolio of patent assets and short-term investments.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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