Less than two months after Alibaba’s record setting IPO and the company’s stock is already approaching the a heady $ 300 billion market cap – it currently sits at $ 293.7 billion up some 27 percent from its opening day value of just $ 230 billion. It’s a number that few companies are familiar with and one which makes even the most modest pre-IPO stakes in the company worth a small fortune.
With that in mind, one can’t help but recall the 2012 decision by Yahoo to sell half its then 40 percent holding in the Chinese Internet giant at its then value of just $ 35 billion. After taxes, the sale netted Yahoo just $ 4 billion ($ 7 billion pre-tax). And yet at today’s valuation, that 20 percent stake would be worth some $ 58.7 billion. It doesn’t take a calculator to determine that Yahoo left, in scientific terminology, a shit ton of value on the table. For those into specifics, the missed opportunity clocks in today at a whopping $ 51.7 billion. (h/t Eric Johnson)
If this fact weren’t staggering enough, consider that all of Yahoo today – including its remaining 15 percent share in Alibaba (after selling an additional 5 percent in its IPO for $ 9.4 billion) – is worth just $ 48.4 billion, a heady level itself not seen since the 2000 dot-com bubble.
Of course, it’s easy, with the benefit of hindsight to say that Yahoo made a mistake in selling its Alibaba holdings early. We, along with others, have applied the same logic, for example, to Mark Cuban’s decision to sell his early stake in Box, although his fears over the cost of its freemium model are looking more prescient by the day. But venture investing isn’t easy and decisions are made only with the information available at the moment. And recall that at the time of the its initial Alibaba sale, Yahoo was in the midst of a revolving door search for a permanent CEO and had been battered by Wall Street for the better part of a decade..
While the 2012 stock sale officially happened under current CEO Marissa Mayer’s watch, the basis of that deal, and indeed the expectations on Wall Street for the resulting cash windfall, had been set by her predecessor Scott Thompson. The move ultimately wasn’t enough to save Thompson’s job, but it has bought Mayer two-plus years of cushion as she attempts to do the unthinkable in turning around Yahoo.
Without the Alibaba cash, Mayer surely wouldn’t have been able to acquire Tumblr for a cool $ 1 billion, and it’s unlikely she would have had the luxury – both financially and in terms of investor patience – to conduct the rest of her talent acquisition spree. Then again, for all the benefit that Yahoo has gotten in recent years as the best publicly traded proxy for the then-still-private Alibaba – a fact that many have attributed almost universally to the company’s rising share price – that effect could have been double.
If most of Yahoo’s value today is its 15 percent stake in Alibaba, which Wall Street has valued at $ 44 billion, then it could be argued that a 40 percent stake in Jack Ma’s ecommerce juggernaut – or the resulting cash from a larger sale by Yahoo into the IPO – would value Mayer’s Yahoo in the $ 80 billion-plus range.
There have been no shortage of opinions over the last half decade about whether Yahoo can be turned around, and about whether Mayer, with her “daily habits” strategy, is in fact making progress in that direction. But it’s surely impossible to argue that another $ 40 billion worth of cash and market value wouldn’t make her job infinitely easier today.
Mayer may be kicking herself today over the decision. By the same token, she better be sending flowers and expensive booze to Yahoo founder Jerry Yang, because it’s his decision to invest the initial $ 1 billion into Alibaba in what at the time seemed like a crazy attempt to enter the Chinese market that afforded Yahoo the life raft to carry it this far. In sum, one crazy early bet by Yang, plus one seemingly foolish one by Thompson and Mayer, largely cancel each other out. For the former, every penny Alibaba’s share price rises is like another spoonful of caviar. For the latter, it’s like another bit of salt rubbed in a wound.