Things have gone pretty quiet on the Microsoft acquiring Yahoo front. With this break in the action we thought that it was worth putting some numbers around four potential futures of Yahoo:

1. Our take of Yahoo as a standalone entity.

2. Microsoft acquiring Yahoo at US$33 a share.

3. Yahoo completing a search deal with Google.

4. Yahoo’s growth decelerates more quickly than currently anticipated.

We have used the Valuecruncher interactive tool for analysing the various scenarios. That means that anyone can follow the below links and play with our valuations – if you want to use different assumptions.

Yahoo Standalone

Our assumptions are revenues of US$5.75 billion in 2008 growing to US$7.25 billion in 2010. We have used a flat EBITDA margin of 35%. We have used a terminal growth rate of 5.75%. We calculated that using a present value calculation with the growth rate dropping from 12% in 2011 to 3.5% in 2015. We used a terminal capital expenditure number of US$600 billion. We have used a WACC (discount rate) of 10.5%.

Valuecruncher Valuation Yahoo Standalone

This gives a valuation of US$20.07 – 26% below the current share price of US$27.00.

Microsoft Acquires Yahoo

We have not done a separate valuation of this option. The fact that Microsoft was prepared to pay in the US$33 range means that they have done their own merger analysis of the synergies that a combined Microsoft/Yahoo can generate. We will use US$33 a share as the valuation of this potential future of Yahoo.

Yahoo Completes Search Deal With Google

We agree with Henry Blodget – a deal with Google on search is not US$1 billion of free cash flow to Yahoo. It is more likely to be in the hundreds of millions of dollars range. For simplicity we have assumed that a search deal with Yahoo adds US$1 billion to the top-line revenues. We have kept all our other assumptions from the Yahoo standalone scenario intact.

Valuecruncher Valuation Yahoo Completes Search Deal With Google

This gives a valuation of US$23.44 – 13% below the current share price of US$27.00.

Yahoo Growth Decelerates More Quickly

Keeping the assumptions from the Yahoo standalone scenario intact but dropping the growth from 12% (in the Yahoo standalone scenario) in 2011 to 10% and falling to 3% in 2015 (using the same present value calculation) gives a terminal growth of 5%.

Valuecruncher Valuation Yahoo Growth Decelerates More Quickly

This gives a valuation of US$17.91 – 34% below the current share price of US$27.00.

Summary

Based on our analysis it seems very straight forward. Yahoo should have accepted the Microsoft offer. Play with our assumptions – what does your analysis say?

Today we are launching a new Valuecruncher website.

Valuecruncher has always been about making the valuation methodologies used by corporate finance professions more accessible to a wider audience. That doesn’t change – but we are now focusing our attention on the valuation of public rather than private companies.

The new site is a free tool for people to create their own valuations of public companies. The site focuses on public companies in the following indices: S&P 500 (US), FTSE 350 (UK), S&P ASX 200 (Australia), S&P TSX Composite (Canada) and NZX 50 (New Zealand). If a company is part of one of those indices it will be in our database. There is a search box to look for companies and a range of paths to browse as well.

Valuecruncher uses a discounted cash flow valuation methodology using a three year forecast period and a terminal growth rate. Valuecruncher populates this discounted cash flow valuation model with a combination of consensus forecast projections for the company, latest balance sheet numbers and Valuecruncher generated inputs. The Valuecruncher valuation is however not a recomendation. The Valuecruncher valuation is intended as a starting point for users to create their own valuations of companies.

The interactive component of the Valuecruncher site allows users to then adjust the key assumptions in the discounted cash flow model to create their own valuations. Registered users can save their valuations and share them with others – who can then adjust the assumptions in the saved valuation.

The Valuecruncher team will continue to write blog posts with our take on the valuation of companies – and link to saved valuations on the site.

Because we are currently using the single valuation approach with the three year forecast period – this means our approach is not appropriate for certain companies and industries (e.g. real estate investment trusts, resource, financial services and insurance companies). These companies still appear in our results – but you can not create a valuation for them.

The team at Valuecruncher are very excited to launch the new site. We have ideas about extending what we have here – but first we want to hear what people think about the site. There is a feedback link on the site – or you can send us an email at feedback@valuecruncher.com.

The Valuecruncher Team – Andrew, JD, Jeremy, Rowan, Sam and Mark