Known as one of the first big brands on the Internet -- and trademarked by its yodeling jingle and the exclamation point at the end of its name -- Yahoo is now under agreement with Verizon to be acquired for approximately $4.83 billion in cash.
Verizon Communications Inc. (NYSE: VZ) announced this morning that it expects to close on Yahoo Inc. (Nasdaq: YHOO) early in 2017 and integrate the business with its AOL division under EVP Marni Walden. The $4.83 billion purchase price is significantly higher than the $3 billion amount Verizon was reported to have bid back in June. However, Verizon faced competition for the Yahoo buy from private equity sources and rival telco AT&T Inc. (NYSE: T). (See Verizon Bids $3B for Yahoo – WSJ Report.)
The sale does not include certain non-core patents (known as the Excalibur portfolio), which Yahoo is reportedly trying to sell in a separate deal. It also doesn't include Yahoo's investments in Alibaba Group and Yahoo Japan. The New York Times estimates these holdings add up to about $32 billion and $8.7 billion respectively.
Yahoo's stock has risen since the beginning of 2016 from about $33 per share to just under $40 per share. However, it dropped from $39.38 at the close of business on Friday to $38.45 at the time of publication this morning.
Verizon's share price also dropped from $56.08 late Friday to $55.74 this morning.
Verizon's interest in Yahoo stems from an ambition to build up its digital content and advertising business, which is also why the telco bought AOL Inc. (NYSE: AOL) for $4.4 billion in 2015. (See Verizon's $4.4B AOL Buy a Digital Media Play.)
According to AOL CEO Tim Armstrong, "Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers."
That sentiment is another way of saying that Verizon hopes to challenge top players Google (Nasdaq: GOOG) and Facebook in the market for digital ad revenue. In addition to Yahoo's content brands, it also owns ad technology assets including: a programmatic demand-side platform gained through its acquisition of Brightroll; mobile app analytics service Flurry; and native and search advertising solution Gemini.
The challenge for Verizon will be integration of all these various assets, including AOL's New York City-based operations and Yahoo's Silicon Valley offices, into an entity capable of competing at web-scale in a way both AOL and Yahoo failed to do individually.
Verizon currently sells multiscreen media services through its Verizon Digital Media Services group alongside ad inventory and other advertising solutions brought in through AOL. Verizon is also hoping to further monetize its vast wireless network through its Go90 mobile video service, but those efforts have yet to bear fruit. (See Verizon Backpedals on Go90.)
— Mari Silbey, Senior Editor, Cable/Video, Light Reading
KBode, User Rank: Light Sabre 7/27/2016 | 4:09:48 PM
Re: Interesting to see detail in VZON Q2 call Meanwhile Go90 isn't having anywhere near the traction they originally hoped for. I imagine just grabbing the ad-technology is worth what they paid, but I don't see them making any real, successful jump to content. They're just not built for it, even with the occasional infusion of Silicon Valley talent. Of course large incumbent telecom companies usually being a yes-men type culture, it's going to take YEARS before anybody there is willing to admit as much.
mendyk, User Rank: Light Sabre 7/27/2016 | 3:57:58 PM
Re: Interesting to see detail in VZON Q2 call KBode -- Agree, and what makes this even more of a challenge is that Verizon doesn't look like it's getting much in the way of management or leadership smarts in these deals that would aid in the required pivot.
KBode, User Rank: Light Sabre 7/27/2016 | 3:34:42 PM
Re: Interesting to see detail in VZON Q2 call "I cannot find an answer to way Verizon spend $4.3 Billion for other advertising company Verizon could use that money to provide everyone the best in voice/data/video with the help of having Verizon FiOS service."
They are in love with Google and Facebook's balance sheets. The margins on ads are incredible. The problem is, you can't pivot from 30 years of legacy turf protection and lobbying (arguably Verizon's real skill set) to disruption, innovation, and sexy Millennial branding on a dime. I think this is going to be a very ugly learning experience for Verizon. It may turn out ok, but not without some headaches.
brooks7, User Rank: Light Sabre 7/26/2016 | 9:36:17 AM
Re: Interesting to see detail in VZON Q2 call To throw in my 2 cents.
There is increible cash flow available in advertising and applications. I have done some due diligence on ISPs and the margin on advertising is staggering. If you take things like Yahoo Mail and kill some of the worst performers you end up with a company that is transforming itself into something that looks more like Google and less like AT&T.
The search deal alone (note Apple's default search engine for iOS devices) probably makes the deal worth it.
I think this and the AOL deal is where the folks at this site need to evolve. The money is not in the physical networks, today it is in applications and advertising. Verizon is buying into trailing edge companies there that have specific valuable assets (seach and mail are examples here). They are cobbling together a range of services that will add lots of cash flow to the business.
steve q, User Rank: Light Sabre 7/25/2016 | 10:38:44 PM
Re: Interesting to see detail in VZON Q2 call I cannot find an answer to way Verizon spend $4.3 Billion for other advertising company Verizon could use that money to provide everyone the best in voice/data/video with the help of having Verizon FiOS service. That will be the best way to provide it needed advertisement. Even with AOL/Yahoo. Verizon had to look at company like Comcast and google could team up and build a empire that will force Verizon hand with 5g if they do not push out FiOS in the city of Boston MA. Are moving forward to gain the customer needed service and that is in the speed of internet and Wi-Fi service
lanbrown, User Rank: Light Sabre 7/25/2016 | 9:24:56 PM
AT&T AT&T was most likely interested since they do use Yahoo to provide email service at the att.net domain among others. If you use the remote web DVR for U-verse, that is also hosted by Yahoo. With Verizon buying Yahoo, what will AT&T do? Will they stay with Yahoo or will they bring it all in house? I'm not certain what deal AT&T has with Yahoo, when it expires and if there is an out if Yahoo is acquired, but I'm sure AT&T won't be happy with Verizon taking Yahoo over. Yahoo does have contact information for AT&T U-verse and high-speed Internet subscribers. Verizon could use that information to sell services and displace AT&T as the provider.
Interesting to see detail in VZON Q2 call It'll be intersting to see what (if any) additional info Verizon provides on its Q2 earnings call Tuesday and how it spins this deal -- including the price!
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