Yahoo! Japan Key to YHOO Treasure

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NEW YORK ( TheStreet) -- Yahoo!'s (YHOO) earnings on Monday garnered a lot of attention because of the star power of new CEO Marissa Mayer and a focus by most analysts and journalists on the state of the comeback of the Yahoo!'s core business.

What didn't get a lot of attention was Yahoo! Japan. It should have.

Yahoo! Japan is the leading Japanese portal and a huge e-commerce player. It's jointly owned by Yahoo! and Softbank - the new owner of Spring (S) . Yahoo's stake in Yahoo! Japan is 35%.

When it comes to Yahoo!'s "Asian assets," most Americans think only about Alibaba. There's good reason. Alibaba will probably be worth $60 billion when it IPOs (as early as this year perhaps). But YJ isn't chopped liver.

YJ is actually worth more than Yahoo!: $24 billion vs. $23.3 billion. Surprised? That's thanks to Tuesday night's trading, which sent YJ up on the news of a great quarter.

A year ago, you might remember that then new Yahoo! CEO Scott Thompson was trying to unload the stake in YJ. He and CFO Tim Morse telegraphed a couple of times on their earnings call that they were actively trying to sell their stake in YJ. However, later in the year, they sheepishly admitted that the valuation gap between the two sides was too big and a deal couldn't be completed.

Thank goodness Yahoo! shareholders were able to avoid that fate. A year ago, Yahoo! Japan's shares traded in Tokyo for JPY23,000 per share.

Wednesday morning, Yahoo! Japan's shares (4689: Tokyo) are trading for JPY37,000 per share.

What happened?

Yahoo! Japan has a new and younger management team in place who have been doing a great job in their first couple of quarters. Tuesday, they released their financial results and they demonstrated an acceleration in growth at the company and the best financial results since 2007. Here's a taste:

  • Revenue up 16% vs. a year ago
  • Operating income up 20%
  • Ordinary income up 18%
  • Quarterly net income up 22%

    But the big news was that the company announced a very large stock buyback: 6% of the float or 25% of the average volume when they'll be making the purchases on the open market.

    The company pointed out that all these shares will be retired. Why? Because suddenly earnings per share will increase significantly.

    So the good news for Yahoo! shareholders is that their stake in YJ is worth $8.2 billion today vs. $5 billion a year ago. Net of taxes and fees, that YJ stake is worth $5.07 per Yahoo! share vs. $2.83 per share a year ago.

    So why would YJ want to do a deal now with Yahoo! for their 35% stake? Well, I'm sure if they had their druthers, they would have loved to do a deal with Scott Thompson at that discounted price. But even paying off Yahoo! at current prices, YJ would be crazy not to do it.