Damodaran Believes That Yahoo! Inc. (YHOO)’s Alibaba’s Management Emanates Warning Signals to Share-Holders

Yahoo! Inc. (YHOO)

Yahoo! Inc. (NASDAQ:YHOO) management and investors are excitedly waiting for the day when the biggest e-commerce outfit in China named Alibaba.com Limited commences trading on 19th September, 2014. While much of the enthusiasm is attributed to the growing popularity and expansion drive of the company, financial experts the world over have been vocal in expressing skepticism about buying its shares.

On being asked on CNBC why he was apprehensive about investing in Alibaba.com Limited, Aswath Damodaran, who teaches finance at NYU stated that his reluctance was based on the lack of confidence on the board of directors. According to him, the method of corporate governance of the company is such that it spells high risk for the investor, does not carry a satisfactory margin of safety and is unsuitable for the long term. Overall, the investor will end up paying a high amount of shares and then end up being treated like a 2nd class citizen which is obviously unsavory.

Yahoo! Inc. (YHOO)

This opinion has been expressed in the Fortune magazine too wherein it has been stated that the army of six executives and 24 managers possess the freedom to tweak rules as per their convenience without the consent of shareholders. Therefore, they can manipulate the existing system to their advantage such that their coffers fill up while that of shareholders’ remains relatively empty. It also implies that in future if the shares of Alibaba.com Limited do not perform so well, the board of directors will continue to amass wealth. Yahoo! Inc. (NASDAQ:YHOO) will also be affected from this situation since the company is the major shreholder of Alibaba.

Why then is Alibaba.com Limited famous as an entity? The answer lies in oriental psychology of having faith in the leader who is at the helm and in this case it is Jack Ma who has always upheld the policy of customers first, employees second and shareholders third. A BBC comment on his persona says it all –

“Not every company boss would dress himself in leather, don a Mohican wig, lipstick and a nose ring and sing Elton John’s Can You Feel the Love Tonight? to his 16,000 employees. That was exactly what Alibaba’s founder, Jack Ma, did to celebrate the company’s 10th anniversary.”

Investors have acquired confidence from the company’s Japanese connection too and hence only time will tell which way Yahoo! Inc. (NASDAQ:YHOO)‘s and other shareholders’ fortunes will turn as regards this company.

This article has been written by Vinita Basu and editedby Serkan Unal.

Related News:

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“Yahoo! Inc. (YHOO) Profit Rises As Alibaba to Raise up to $21.8 Billion in the IPO”

“Yahoo! Inc. (YHOO) to Benefit From Alibaba’s New Price Range for IPO”

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