Following Verizon‘s acquisition of core Yahoo! (NASDAQ:YHOO) assets, the remaining entity has changed its name to Altaba, effective June 16. That company is worth far more than the $4.5 billion Verizon paid in its deal — as of this writing, Altaba boasts a market cap of approximately $50 billion.
Last week, the company registered itself with the SEC as a “non-diversified, closed-end management investment company.” In other words, Altaba is left overseeing the remaining patent portfolio and other investments, including stakes in Alibaba (NYSE:BABA), Yahoo! Japan, and a small position in Snap, among others.
Here’s what investors need to know about Altaba.
Alibaba stake more valuable than the entire company
Altaba owns a 15% stake in Alibaba, which is valued at $341 billion as of this writing, making the investment worth over $51 billion. The 35.5% stake in Yahoo! Japan is worth about $8.5 billion., and the company also has around $11.5 billion in cash and just $1.3 billion in debt.
By comparison, the 4.6 million shares of Snap, worth another $80 million or so, are just a blip in the portfolio. Nonetheless, Snap is one of its more noteworthy investments, which really helps exemplify how “undiversified” Altaba is as a holding company.
Regardless, Altaba is still worth less than the sum of its parts. One of the big reasons for selling off the Yahoo! assets was to help unlock the value of its strategic investments. CEO Thomas McInerny is tasked with growing the portfolio, but he has one major task to deal with in the near term.
Why Altaba is worth less than the sum of its parts
Everything is great when you invest $1 billion in a company valued at $2.5 billion, and the company proceeds to grow more than 100-fold over the next decade. The problem comes when you want to harvest your investment.
In this case, Altaba estimates it would have to pay $15 billion in taxes for an outright sale of its assets. McInerny’s top task will be to reduce the that tax liability through strategic divestments of its holdings.
It appears most investors are pricing in the likelihood of a 36.5% tax burden on any sale proceeds. That’s the estimated effective tax rate Yahoo! cited in its regulatory filings. But if McInerny can reduce the tax burden, or regulations change, Altaba could be a discount means of investing in Alibaba, Yahoo! Japan, and the rest of Altaba’s portfolio.
Why not just invest in Alibaba?
Given the vast majority of Altaba’s value comes from its Alibaba stake, investors may be better off just investing directly in the latter. For one, it allows you to exercise much more control, without the uncertainty surrounding Altaba. Nor do you have to worry about Yahoo! Japan and the patent portfolio.
Ultimately, the Altaba name describes the company’s appeal perfectly: It’s an alternative to Alibaba. But unless you’re also looking to invest in Yahoo! Japan and the other holdings, or you’re very bullish on future tax reform or McInerney’s leadership, Altaba stock doesn’t look like a particularly great value over Alibaba.