Stock Analysis on Net

Yahoo! Inc. (NASDAQ:YHOO)

This company has been moved to the archive! The financial data has not been updated since May 9, 2017.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

Intrinsic Stock Value (Valuation Summary)

Yahoo! Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 18.58%
01 FCFF0 1,258,996
1 FCFF1 1,361,730 = 1,258,996 × (1 + 8.16%) 1,148,407
2 FCFF2 1,498,145 = 1,361,730 × (1 + 10.02%) 1,065,524
3 FCFF3 1,676,058 = 1,498,145 × (1 + 11.88%) 1,005,317
4 FCFF4 1,906,234 = 1,676,058 × (1 + 13.73%) 964,262
5 FCFF5 2,203,435 = 1,906,234 × (1 + 15.59%) 939,991
5 Terminal value (TV5) 85,335,921 = 2,203,435 × (1 + 15.59%) ÷ (18.58%15.59%) 36,404,515
Intrinsic value of Yahoo! Inc. capital 41,528,015
Less: Convertible notes and capital lease obligations (fair value) 1,337,876
Intrinsic value of Yahoo! Inc. common stock 40,190,139
 
Intrinsic value of Yahoo! Inc. common stock (per share) $41.94
Current share price $49.49

Based on: 10-K (reporting date: 2016-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

Yahoo! Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 47,421,268 0.97 18.98%
Convertible notes and capital lease obligations (fair value) 1,337,876 0.03 4.09% = 5.34% × (1 – 23.50%)

Based on: 10-K (reporting date: 2016-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 958,198,997 × $49.49
= $47,421,268,361.53

   Convertible notes and capital lease obligations (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (37.60% + 2.02% + 34.90% + 10.03% + 32.93%) ÷ 5
= 23.50%

WACC = 18.58%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Yahoo! Inc., PRAT model

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Average Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012
Selected Financial Data (US$ in thousands)
Interest expense 73,783 71,865 68,851 14,319 9,297
Net income (loss) attributable to Yahoo! Inc. (214,321) (4,359,082) 7,521,731 1,366,281 3,945,479
Add: Net income attributable to noncontrolling interest 4,858 7,975 10,411 10,285 5,123
Add: Income tax expense (126,228) (89,598) 4,038,102 153,392 1,940,043
Earnings before tax (EBT) (335,691) (4,440,705) 11,570,244 1,529,958 5,890,645
 
Effective income tax rate (EITR)1 37.60% 2.02% 34.90% 10.03% 32.93%
 
Interest expense, after tax2 46,039 70,415 44,821 12,883 6,235
Interest expense (after tax) and dividends 46,039 70,415 44,821 12,883 6,235
 
EBIT(1 – EITR)3 (168,282) (4,288,667) 7,566,552 1,379,164 3,951,714
 
Convertible notes 1,299,945 1,233,485 1,170,423 1,110,585
Net lease obligations 23,000 33,000 47,000 44,000 37,000
Total Yahoo! Inc. stockholders’ equity 31,049,283 29,043,537 38,741,837 13,074,909 14,560,200
Total capital 32,372,228 30,310,022 39,959,260 14,229,494 14,597,200
Financial Ratios
Retention rate (RR)4 0.99 0.99 1.00
Return on invested capital (ROIC)5 -0.52% -14.15% 18.94% 9.69% 27.07%
Averages
RR 0.99
ROIC 8.21%
 
FCFF growth rate (g)6 8.16%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

1 EITR = 100 × Income tax expense ÷ EBT
= 100 × -126,228 ÷ -335,691
= 37.60%

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 73,783 × (1 – 37.60%)
= 46,039

3 EBIT(1 – EITR) = Net income (loss) attributable to Yahoo! Inc. + Interest expense, after tax
= -214,321 + 46,039
= -168,282

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-168,28246,039] ÷ -168,282
=

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -168,282 ÷ 32,372,228
= -0.52%

6 g = RR × ROIC
= 0.99 × 8.21%
= 8.16%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (48,759,144 × 18.58%1,258,996) ÷ (48,759,144 + 1,258,996)
= 15.59%

where:

Total capital, fair value0 = current fair value of Yahoo! Inc. debt and equity (US$ in thousands)
FCFF0 = the last year Yahoo! Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Yahoo! Inc. capital


FCFF growth rate (g) forecast

Yahoo! Inc., H-model

Microsoft Excel
Year Value gt
1 g1 8.16%
2 g2 10.02%
3 g3 11.88%
4 g4 13.73%
5 and thereafter g5 15.59%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 8.16% + (15.59%8.16%) × (2 – 1) ÷ (5 – 1)
= 10.02%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 8.16% + (15.59%8.16%) × (3 – 1) ÷ (5 – 1)
= 11.88%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 8.16% + (15.59%8.16%) × (4 – 1) ÷ (5 – 1)
= 13.73%