Dan Loeb, the famous activist investor, has been quite successful with his investment in Yahoo! Inc. (NASDAQ:YHOO). Last week, he sold 40 million shares of Yahoo!, or two-third of his Yahoo! Inc. (NASDAQ:YHOO) stake, back to the company for a total transaction value of around $1.16 billion. After the divestment, he still owns around 20 million shares in the company. According to his second quarter letter to investors, since inception, its investment’s internal rate of return was more than 50%. Is Yahoo! still a good buy after Dan Loeb’s divestiture? Let’s take a closer look.
Yahoo! is not performing well in the advertisement field
Under the leadership of Marissa Mayer, Yahoo! Inc. (NASDAQ:YHOO) has gained as much as 40.35% on the market, outperforming the S&P 500’s gain of only around 18.20%. Yahoo! derived most of its revenue from advertising. In the second quarter, display-ad revenue contributed nearly $471.7 million, accounting for around 41.5% of the total revenue, while the search-ad revenue contributed around $418.2 million in sales. Despite the U.S. advertising market growth of 15% last year, Yahoo! Inc. (NASDAQ:YHOO) advertisement revenue went the opposite way. The display-ad revenue experienced a 12% decline, whereas the search-ad revenue decreased by 9%.
Its much bigger peers, including Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) , have seen their revenue grow significantly. In the first quarter, Google’s revenue experienced year-over-year growth of 22% to nearly $13 billion, while Facebook’s advertising revenue enjoyed spectacular growth of 60% to $1.25 billion, representing as much as 85% of its total revenue. Among the three, Facebook Inc (NASDAQ:FB) seems to be strong in mobile advertising, contributing as much as 30% of the company’s total revenue.
Dan Loeb is still bullish on Yahoo!, but it is quite expensive now
What got Dan Loeb previously excited about Yahoo! Inc. (NASDAQ:YHOO) was its stake in Alibaba, the fast-growing Chinese internet firm. He mentioned that since he initiated the position, more than $20.2 billion of value has been created, including more than $5.2 billion of cash being returned to shareholders. He saw that the momentum around Yahoo!’s new products, especially for mobile, has risen significantly. Dan Loeb believed that the company would prosper under the leadership of Ms. Mayer.
However, I personally think that Yahoo! Inc. (NASDAQ:YHOO)’s valuation is quite high right now. It is trading at around $28 per share, with a total market cap of $30.60 billion. The market values Yahoo! at more than 22 times its trailing EBITDA.
Yahoo!’s valuation is closer to Facebook’s valuation, which is often known to be high. At $35.40 per share, Facebook Inc (NASDAQ:FB) is worth around $85.20 billion on the market. The market values Facebook at 27.3 times its trailing EBITDA.