Nikolay Zvezdin's picture

Yahoo's Core Business: Destroyed Business or Hidden Opportunity

Yahoo Inc., one of the last remaining giants of the 90s tech boom, started fading in the beginning of 2004, due to the declining sales, eroding profit margins, and diminishing asset turns (Exhibit 1). That led analysts to expect that the Company is facing its last days, as it doesn’t possess a competitive advantage, nor it developed any innovative product or service, and missed an opportunity to become one of the biggest tech firms by failing to recognize a global transition from desktop to mobile space.

Exhibit 1. Decline of Yahoo’s sales growth, profit margins, and asset turns.


Marissa Mayer was appointed as a President and CEO of Yahoo Inc. in 2012, bringing the hope that she will be able to turnaround the Company and create value for shareholders. However, her actions led to the persistent capital misallocation and destruction of Yahoo’s value by:

  • boosting unnecessary expenses such as increasing the headcount to over 12,000, providing all employees with an iPhone and free food (in total costing over $0.45bn.);
  • boosting R&D expenses leading to no new successful products ($4bn. spend on R&D since 2012);
  • acquiring zombie companies and the ones run by Google APM (Associate Product Manager) programme alumni for total of $3bn., which are valued at zero by investors in Yahoo’s current stock price;
  • spending money on under-water buybacks that destroyed $2.5bn. in value since 2012;
  • losing the war for mobile space to Google, Apple, Facebook, and Twitter.

As a result of Mayer’s actions, according to the high-level math, the Company produced an IRR of 40.5% since 2012, 24.3% of which is attributable to the effect of leverage, and 16.0% - to the capital gains (Exhibit 2). That implies that the Company’s actual operations produced an IRR of 0.2%.

Exhibit 2. How much of the internal rate of return is attributable to different return sources of Yahoo Inc.


Due to the significant capital misallocation, Yahoo’s CFROI fall below the cost of capital (Exhibit 3) indicating a value destruction, which led a major investor Starboard Value to force Mayer to hold onto the Alibaba stake and to instead look to sell the Сompany’s core business that de facto makes Yahoo a holding company for its Asian investments.

Exhibit 3. Capital misallocation leading to value destruction.

Currently the Company is seeking for a $10bn. price tag, however the presumed range of the latest round of bids is within the range of $3-8bn. According to these bids, potential acquirers do not value Yahoo’s core at zero or negative, and there is a strong motivation for that.

According to the latest market valuation, the sum of Yahoo’s parts (stakes in Alibaba Group Holding Ltd., and Yahoo! JAPAN Corporation, net cash, and core business) is $37.5 per share (Exhibit 4), implying $(10.7) per share for Yahoo’s core business (Exhibit 5). However, valuing the core business by comparables (Exhibit 6), taking the market expected growth of EBITDA, and implying that the EV/EBITDA will come to the industry levels (from 90.2x to 16.1x), we arrive at the value of $6.7 per share of core business (around $6.4 billion of EV), that means that the potential acquirers propose a reasonable price.

Exhibit 4. The value of Yahoo’s sum of parts.


Exhibit 5. Yahoo Inc. current share price.

Exhibit 6. Market-based value of Yahoo Inc. core business.


Exhibit 7. Yahoo Inc. implied share price.


So why after all investors would be willing to pay for Yahoo’s core business and what do they expect to gain from the transaction?

The most likely answer to the question is the opportunity to execute an efficient turnaround pan and potential synergies. No matter who acquirers Yahoo – strategic or financial investor, according to SpringOwl Asset Management, there is a possibility to realize around $61.5 (Exhibit 8, 9) of share value additionally (in contrast to $4 per share as suggested by Starboard’s plan) in the case of successful turnaround.

Exhibit 8. Key drivers to unlocking value in Yahoo’s share price.

Exhibit 9. Plan unlocking a meaningful upside for shareholders.



1 - Selling Yahoo Core now at the lows for $6B

2 - 8x EV/EBITDA Multiple for Core Doing $3B EBITDA ($750M Normalized EBITDA plus $2.25B in Headcount Reductions)

3 - Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12%

4 - Retiring 228 million shares at $43/share from $4B cash, $1.8B in real estate sales, and $4B in debt

Therefore, no matter who acquires Yahoo’s core business, it is very likely that we will see dramatic changes in the Company that will be led by the acquirer aiming to unlock the potential value.



Erin Griffith, Dan Primack. (2016, April 15). Don't Believe Everything You Read on the Yahoo Sale. Retrieved from Fortune:

Eugene Kim. (2016, April 23). More than 10 companies want to buy Yahoo, with some willing to pay $8 billion for the core business. Retrieved from Business Insider UK:

Jack Du. (2016). Why Yahoo's Core Business Is Negatively Valued (YHOO). Retrieved from Investopedia:

Marc Goedhart, Cindy Levy, and Paul Morgan. (2015, November). A better way to understand internal rate of return. Retrieved from McKinsey & Company:

Mike Winston. (2015, December 9). Yahoo Switcheroo, Goodbye Aabaco, Hello Core Spin: Revised Sum Of The Parts. Retrieved from Seeking Alpha:

SpringOwl! Asset Management LLC. (2015). Yahoo! Investor Presentation: A Better Plan For Yahoo Shareholders. Retrieved from

Steven Davidoff Solomon. (2016, May 18). Leaks Abound as Yahoo Auction Gets Underway. Retrieved from The New York Times:

Nikolay Zvezdin's picture

Changing Shape of Education (Part II)

Online education is a new system that slowly replaces the traditional education, which is currently at the fade stage, i.e. the system exhausts the possibilities of further significant improvement. The educational architecture is being transformed, and the core of this new structure will be represented by the individual development trajectory, which may become the “education & career track” that accompanies everyone through their entire lives (Figure 4. Learner’s Path in 2030 Education (Demand Side).

Figure 4. Learner’s Path in 2030 Education (Demand Side).

According to the Global Education Futures the new educational model will sustain and succeed only if it will be supported by a group of inter-dependent technological solutions. These solutions will have all functionalities of the traditional “industrial” education, yet will be cheaper and more efficient. The core of this new infrastructure will have to have four main elements (Figure 5. Learner’s Tech Environment in 2030 Education (Supply Side)):

  • Educational trajectory management interface (a system that will allow students to set their goals (educational and career), to create or modify their planned educational programs, and to track their progress)
  • Libraries/Search engines that allow to choose specific online courses or entire programs
  • Assessment and certification systems that will allow students to receive external confirmation of knowledge, skills, and abilities
  • Achievement recording tools, e.g. integrated electronic portfolio, online competency passport including real-time performance recording, etc.

Figure 5. Learner’s Tech Environment in 2030 Education (Supply Side).

Moreover, new online-educational system must have and use new financial products that will be a key to the formation of the new system. Therefore, in addition to the traditional models of financing, we should expect an emergence of such forms of financing forms/financial instruments as:

i.   Direct “talent investment” – the investment made directly into a student. For this to be transparent and manageable, both the process and the outcomes of education must be
documentable and measurable. Therefore, the following products will emerge:

       a.  Competence passports

       b. Analysis of the contribution of specific educational products to the development of skills & competencies

       c. Educational trajectory as a program designed to increase the probability of successful investment

       d. Transition to integrated “education & career” trajectories

ii. The insurance model based on the assumption that “being competent” is similar to “being healthy” (competence implying sufficient knowledge and adaptability in the society, including competitive employability).

iii. “Mutual benefit society”, a model that can be developed in the context of ‘horizontal’ education, when communities of practice create mutual funds to order educational services that match current needs of their members.

iv. “Educational casino”, in which an additional monetary incentive is created for students through betting on their ability to study a subject or form a skill.

v. The reputational capital exchange model, in which reputation becomes an indicator of accumulated personal skills and traits, and it can be spent to develop additional skills through exchange with their possessors.

Today, the major factors supporting the emergence of online education are:

  • Constantly decreasing prices (compared to traditional education) (Figure 6. Fundamental Graph for Replacing ‘Old’ Education with ‘New’ Education),
  • Ability of online education to benefit from both the economic expansion (due to the flow of new investments stimulating the development of industry), and recession (due to the shifting demand from traditional education to online education due to the drop of population’s income, but still existent  need to stay competitive in the job market)
  • Change of generations (and therefore increasing number of those who support the online education)
  • Inability of traditional educational institutions to adapt to the new reality (according to Bain & Company)

However, this system will sustain only if it will overcome the barriers on its way that The Boston Consulting Group described as:

  • Insufficient reputation among some students and their parents
  • Insufficient regulation and accreditation of online-educational degrees
  • Perception of some students that online education is a lower quality compared to traditional programs
  • Lack of proper experience (interaction with the instructor and other students), and therefore lack of networking

However, the last problem is already on its way to being solved as we see an emergence of online communities where students engage, interact with each other and network, like: Project Firefly – merit based; Evisors – fee-based career advisor network; WSO – forum-based networking.

Figure 6. Fundamental Graph for Replacing ‘Old’ Education with ‘New’ Education.


  1. Ambient Insight. (01/2015). 2015 Learning Technology Research Taxonomy.
  2. Global Education Futures. (2013). Global Education Futures Agenda.
  3. Jeff Denneen (Bain & Company). (29/10/2014). Why many universities will fail in online education.
  4. The Boston Consulting Group. (02/10/2014). Online Education Has Reached the Mainstream 
  5. Global Education Futures. (2013). Global Education Futures Agenda. Retrieved from:

Figures' Sources:

Figure 4 – Global Education Futures. (2013). Global Education Futures Agenda (page 38);

Figure 5 – Global Education Futures. (2013). Global Education Futures Agenda (page 40);

Figure 6 – Global Education Futures. (2013). Global Education Futures Agenda (page 47).

Nikolay Zvezdin's picture

Changing Shape of Education (Part I)

Replacement of Industrial by Online Education

Online education systems started developing in the past decade, however, they were only able to achieve significant growth in the past few years due to the technological advancements accomplished in the new century. From 2000 onwards, analysts have predicted the most radical technological changes in education since the appearance of national education systems. Unlike past developments they expect changes to be driven by the private sector, in particular, by the IT, finance, and healthcare companies.

In the past few years the global educational structure has already started a transformation that was imposed by major external factors, such as: IT & telecom development that changed the ways and speeds of knowledge transmission and processing; emergence of a new transnational education market, presented in the form of technology start-ups, public perception of education as an intangible investment asset, economic dynamics in developed countries that demand new types of competencies, and new forms of preparation. Further shifting values of society implying that the educational system obtains a new type of “human resource” to work with, on the one hand, presented by a growing number of students who no longer value education and so we see less motivation to learn (thus comes the need for gamification and other means that help retain students’ interest) on the other hand – a growing share of conscientious students who understand the importance of personal development, who are willing to set their own goals and are, therefore, reluctant to take “package deals” presented by the universities.

Due to the aforementioned factors, Global Education Futures expect significant changes in the educational system in the next twenty years that will transform the whole educational architecture (Figure 1. The New Education Landscape in Developed Countries).

Figure 1. The New Education Landscape in Developed Countries.

Today the major online education markets are located in developed countries with strong and advanced IT infrastructures – USA, Canada, UK, and EU countries. However, Ambient Insight shows that the biggest growth of the market is coming from the developing world: India (55% growth), China (over 50% growth) and Malaysia (over 40% growth). These are the fast growing countries that aim to compete with the developed world on educational arena, and increase the competitiveness of the local students by successfully rebuilding the educational models of industrialized countries locally (Figure 2. The Stages of Development in Education Systems).

Figure 2. The Stages of Development in Education Systems.

Due to the awareness of some governments about the changing reality of education, countries like the USA, EU countries, UK, Canada, Russia, and some others have already started actively supporting online education industry by subsidies, light tax regimes, and other methods stimulating the investments into this industry, which accelerates the transmission to the new educational system (Figure 3. Education in the Human Life Cycle: From Sprinting to Marathons).

Figure 3. Education in the Human Life Cycle: From Sprinting to Marathons.



  1. Ambient Insight. (01/2015). 2015 Learning Technology Research Taxonomy.
  2. Jeff Denneen (Bain & Company). (29/10/2014). Why many universities will fail in online education.
  3. The Boston Consulting Group. (02/10/2014). Online Education Has Reached the Mainstream 
  4. Global Education Futures. (2013). Global Education Futures Agenda. Retrieved from:

Figures' sources: 

Figure 1 – Global Education Futures. (2013). Global Education Futures Agenda (page 3);

Figure 2 – Global Education Futures. (2013). Global Education Futures Agenda (page 7);

Figure 3 – Global Education Futures. (2013). Global Education Futures Agenda (page 36).

Nikolay Zvezdin's picture

From Non-Target to a career in global finance?

My story might be a little different from other students’ who dream of becoming an investment banker. I come from a country that has many disadvantages, some of which are: it is not developed enough to have an IB market, nor is it subject to programmes for developing countries (like African or Latin American countries). Adding the fact that I am a minority in my home-country (as I am ethnically Russian) that can't benefit from any tailor-made international support programs makes life even harder.

To begin with – I am a graduate of a high school in Tajikistan. I knew that I want to be a finance professional from the high school, and knew my disadvantages, which forced me to explore all the opportunities I saw. In 10th grade I became a finalist of  FLEX (Future Leaders Exchange) Programme sponsored by the U.S. State Department, and got a chance to study in a high school in USA. Being impressed by a new country, I applied to the top universities of USA and got admitted to the University of Chicago with a partial scholarship, however, due to the financial issues was not able to sponsor the rest of the fees. Based on my test results, Richmond University in London found me and offered to study there with a discount in tuitions, which still was unaffordable. After exploring other options, I found my current university – Ozyegin University, which is among the top universities in Turkey. Observing that the university had such strengths as education in English language, strong faculty members, programme that I wanted, affordable fees, and as a bonus – a founder of university that has strong connections with the finance industry, I decided to peruse this option.

Later on I realized that I will be able to utilize full advantages of such education in Turkey only (while I targeted western career), which forced me to seek for opportunities to develop a strong competitive advantage. I started participating in different competitions, and was trying to make a smooth career progress into IB (rather than jumping in the industry with a university degree only).  As a result, my team won the CFA Research Challenge in Turkey, I was among the finalists of TEB Innovation Challenge, got recognition for one of the Credit Suisse HOLT Community Competitions, and recently won the latest Credit Suisse HOLT Community Competition. I entered the IB industry from very far – from commercial banking in Tajikistan, that later helped me to get an assurance/advisory internship in big5 audit company, and all that combined helped to get a Private Equity internship in Hong Kong. Someone might wonder how a person without IB experience got a PE internship, and the answer is “hard work, and ability to see and use opportunities”. As the founder of our university has connections with the finance industry – I researched his affiliated companies, and discovered that he is on the advisory board in that fund. I applied there knowing that the university will not be considered as non-target, and I will have equal chances with students from Ivy League, and Oxbridge (that also interned there with me), and got it.

Now I am happy with my experience and background, as that provided me with “whatever it takes” attitude, and the ability to make use of all opportunities – some of which Project Firefly and HOLT Community provide. All my experiences contributed to that, and I am not sure whether I would be the same person if I would study from the beginning in a top school. Therefore, as somebody wise said, “whatever happens is for the best”, and even if you are at the worst position in the beginning – you can make use of it, and turn that into a strong competitive advantage that others will never have – like Project Firefly’s competitions give you an opportunity to get great incentives in short-turn, but also provide you with an experience and knowledge that you acquire while participating that serves you in the long-term.