Morningstar | No-moat Altaba's main holdings remain Alibaba and Yahoo Japan.
We believe Yahoo is focused mainly on selling its core Internet business in order to benefit shareholders by unlocking the value of its holdings in Alibaba and Yahoo Japan. Yahoo likely will become a shell company or a tracking stock representing Alibaba and Yahoo Japan. While we think most of the company’s valuation will be based on those two holdings, we expect it to be discounted as the risk of a non-tax-efficient liquidation of those holdings remains.Regarding Yahoo’s core business, we believe the firm will continue to face difficulty generating attractive returns on invested capital. While its web properties have approximately 1 billion users, their lack of meaningful user growth and lagging position behind other big players in the mobile and social network ad spaces have made generating top-line growth an arduous task for a management team that prioritizes selling the business in the short term. We view Yahoo as a no-moat company.Yahoo’s core business is a collection of Internet properties that generate revenue by distributing content and selling online advertising. The firm was the number-one online destination for users wanting to search, email, or consume news and other information from the mid-1990s until the early 2000s. However, it lost web portal and email market share very quickly to companies such as Google and Microsoft. Its main properties and services remain Yahoo Mail, Sports, and Finance.Yahoo’s acquisitions of ad tech companies (like BrightRoll) and social networking companies (like Tumblr) are unlikely to bear any fruit. While the company is focusing on Mavens (mobile, video, native ads, and social) to drive more revenue growth, we believe it might be too late as it will continue to lose market share to Facebook, Google, and other companies.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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