Yahoo investors have waited years for Alibaba's IPO, expecting the public value of the Chinese e-commerce giant's stock that Yahoo owns might send Yahoo's stock into the stratosphere.

Alas.

In the early hours following Alibaba's debut, Yahoo's stock was getting smashed. Some of the selling pressure may be from Yahoo owners who owned it as a way of gaining exposure to the private Alibaba — who are now dumping Yahoo stock and buying Alibaba's instead. Other traders may be shorting Yahoo to bet against Alibaba. And still others may have owned Yahoo just for the Alibaba pop and are now taking their winnings and going home.

Regardless, a sum-of-the-parts analysis suggests the market is now valuing Yahoo's actual business at less than zero.

Yahoo stock opened the day at $42.40 per share. It's currently down ~5% to $40.23 per share. This puts Yahoo's market capitalization at $40.01 billion.

Here's the math for figuring out the value of Yahoo's core:

Start with Yahoo's $40 billion market cap.

Subtract the $10.5 billion in cash that Yahoo will have after receiving the proceeds of its Alibaba stock sale and paying taxes on its gain (Yahoo won't have to pay these cash taxes for a while, so it will retain the cash for now).



Subtract the value of Yahoo's 35% stake in Yahoo Japan. It's worth about $5 billion after taxes.



Compute the value of the 401 million shares in Alibaba that Yahoo still owns, which is worth about $25 billion after taxes with Alibaba trading at $90 per share.

What you're left with is the value the market is attributing to Yahoo's core business: About -$500 million with Alibaba trading at $90.

Yahoo has about a billion shares outstanding. If each are going for $40, Yahoo's core business makes up less than $0 of that price — theoretically, -$.50 per share.

It's a shockingly low valuation for Yahoo's core business.

Yahoo still has almost a billion people coming to Yahoo.com and its other products and services each month. Over the past 12 months, it has sold enough ads against those eyeballs to generate $4.62 billion in revenue and $772 million in EBITDA.

Yahoo revenues aren't growing at the moment, and it's still behind in mobile, but the company is definitely worth more than zero.

Here's why: If someone were to step in and buy Yahoo today, that buyer would be able to sell the company's stakes in Alibaba and Yahoo Japan, pay for the acquisition entirely, and start profiting from Yahoo's core business immediately.

The company is obviously now an attractive acquisition target.

(I'm using Ironfire Capital's Eric Jackson's estimate for the taxes Yahoo would pay if it were to liquidate its Alibaba and Yahoo Japan holdings.)