Published January 28, 2015
CEO, Tompkins International
Today we are faced with a very interesting question on the value of an organization. Is the value of an organization based on brand, market share, EBITDA, growth potential, stock holding, cash …? The answer is yes, yes, yes …. Is an organization valued on supply chain, technology, and its global penetration? The answers are yes, yes, and yes. So, how does this play out and why are we discussing this today?
We are discussing this today because yesterday, Yahoo presented its plans on 85% of its valuation – their holding in Alibaba stock. Insight into Alibaba gives us a view specifically of how supply chain, technology, and global penetration relate to value. Today, Yahoo has a value of $46 billion. This valuation can best be understood by viewing what was disclosed about the disposition of its major components:
- Yahoo owns $39.5 billion of Alibaba stock that will be spun off
- Yahoo owns $7.3 billion of Yahoo Japan stock which will be spun off
- Yahoo has $7 billion of cash in the bank
So, $46B is value, minus $39.5B from Alibaba, minus $7.3B from Yahoo Japan, minus $7B in cash leaves a value of ($7.8B). Yes, a negative $7.8B. How could Yahoo possibly have a value that is less than zero? Yahoo reported revenue of $1.25 billion in the most recent quarter and an adjusted profit of 30 cents a share in the quarter. I believe the explanation behind their negative value is because in the eyes of the stock market:
- Yahoo does not have a supply chain
- Yahoo has technology that was late recognizing the mobile phone and tablet growth for internet access, and
- Yahoo, except for their stock holding, has no significant global penetration.
So, the conclusion we can reach here is that the math done when buying a firm has something to do with brand, market share, EBITDA, growth potential, holding, cash, etc. However, at the end of the day, the real value of a company is a combination of the perceived value of their supply chain, their technology, and its global penetration. For example, consider three very different companies Wal-Mart, Amazon, and Alibaba. All of which have great value and are highly respected. I am sure the calculations of value come from many different factors, but the real value of these three firms comes from their tremendous focus on supply chain, technology, and global penetration.
It is my view that focusing on the Supply Chain, the technology of the Supply Chain, and the global Supply Chain is really a BIG DEAL and adds huge value to our organizations. Sure there are other value drivers, but for me and my friends, Supply Chain is a key to the value of an organization.