How to value the Yahoo 'puzzle' for a potential sale

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Wall Street looked for clues on the future of Yahoo Tuesday as the internet company reported earnings that could influence its potential sale. But earnings left at least one important question unanswered: What's the floor of a bid for Yahoo?

Although pressure mounts for Yahoo to sell itself to the highest bidder, the plan is far from final, experts told CNBC. Indeed, Yahoo hasn't committed to either a reverse-spin-off of its Asian assets nor a sale of its core business — and it's a mystery what's up for auction.

Despite declining revenues, Yahoo announced Tuesday it had $7.1 billion in cash. But media outlets like Re/code and The Wall Street Journal have sources that say bids are likely to come in a range of $4 billion to $8 billion dollars.

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So if Yahoo has $7.1 billion in cash on hand, why would a potential buyer think they could get $3 billion less?

"It is still not clear what is being offered in the auction, but I can almost guarantee you that it does not include cash on hand," said Aswath Damodaran, finance professor at the Stern School of Business, who has owned shares of Yahoo.

Damodaran initially valued Yahoo in 2014, calling the company "a puzzle, a mystery and an enigma." He found the core business was worth $4.6 billion and has declined in value since.

Youssef Squali, an analyst at Cantor Fitzgerald, sets his price target on the assumption that Yahoo will sell its core operating business at a 40 percent tax rate, for $3.74 per share.

By a sum-of-the parts analysis, he adds on cash and investments (less debt) at $6.09 per share, and stakes of Alibaba ($31 per share) and Yahoo Japan ($8.29 per share) for a total price of $49 per share.

Thus both Damodaran and Squali estimate that a $4 billion to $5 billion valuation makes sense for the company, excluding real estate, cash, intellectual property and Asian assets. There's also a lot of leeway when it comes to the value of the Yahoo brand, Jeff Smith, CEO of activist fund Starboard Value, told CNBC Tuesday.

"If you look at the fundamentals, somebody could easily pay $3 billion, $4 billion, $5 billion, $8 billion, $10 billion-plus for this asset if they cared enough for it — it depends on what they're going to do with it," Smith said.

So if Yahoo took a bid like that, what would come next?

"The company would still exist after the sale," Damodaran said. "It still has to deal with the Alibaba and Yahoo Japan holdings. My guess is that after they get the cash from the sale, they have to think of the end game, and minimizing the taxes from their holdings will be a primary factor."

— CNBC's Everett Rosenfeld contributed to this report.

Disclosure: CNBC has a content-sharing agreement with Re/code.