Verizon officials are not exactly yelling yahoo these days over their pending acquisition of Yahoo's operating business.
In the wake of Yahoo Inc. (Nasdaq: YHOO)'s stunning disclosure last month of a massive data security breach of about 500 million user accounts, Verizon Communications Inc. (NYSE: VZ) is now weighing its options for renegotiating the terms of the $4.8 billion deal signed three months ago. On the company's third-quarter earnings call with analysts this morning, Verizon CFO Fran Shammo said the process of evaluating the implications of the "extremely large breach" has just begun and could take quite a while as the company waits for Yahoo to complete its own security investigation. (See Verizon Sports Big Plans for Yahoo,)
"We are still evaluating what it means for the transaction," he said. "It will be a long process."
Verizon has been expecting to close the deal in the first quarter of next year, subject to approval by its shareholders and regulators. It's not yet clear whether that timing may now change because of the data breach investigation and potential new negotiations.
Verizon officials discussed the Yahoo security issue while reporting financial results that fell short of analyst expectations. In the third quarter, the company posted earnings of 89 cents per share on $30.9 billion in revenue, down from 99 cents per share on $33.2 billion in revenue in the year-ago period. As a result, Verizon shares were trading just above $49 a share late this morning, down about 2.5% for the day.
Despite the Yahoo problem, Verizon executives remain committed to their new digital media strategy. On the earnings call, they stressed the early progress that they're making in building AOL into an online advertising tech powerhouse. Shammo said AOL's ad tech business generated $48 million in revenue for the summer quarter, up 10% from the previous quarter, with the increase primarily driven by expanding programmatic capabilities and new data analytical tools.
"We believe we are strategically well positioned," said Shammo, who's retiring from Verizon at the end of the year after striking deals like the AOL and Yahoo acquisitions. "We have to think about new ways to monetize our capabilities and that's through advertising."
Turning to Verizon's other fledgling media assets, Shammo said Go90, the company's mobile video service, is seeing greater customer engagement after launching a new original series over the summer. He said average daily usage has now topped 30 minutes per user while less than 20% of the traffic is riding on Verizon's wireless network.
Verizon officials also boasted about their early progress on the related IoT and smart city fronts. After a flurry of deals in recent months, the company reported that its organic IoT revenues, led by telematics, rose 24% year-over-year to $217 million in Q3.
"These companies are still maturing," said Shammo, referring to the three new acquisitions -- Telogis, Fleetmatics and Sensity Systems. "We're expecting the ROI on them to happen very quickly."
On the more traditional wireline video end of the business, Verizon reported that it added 30,000 Fios Video subscribers in the quarter, down from 45,000 a year ago, as it continues to recover from its prolonged employee work stoppage in the spring. It now has nearly 4.7 million video customers, up about 63,000 over the last 12 months.
Verizon fared better on the broadband side of the business, adding 90,000 Fios Internet subscribers, down slightly from 96,000 in Q3 2015. As a result, it closed out the quarter with almost 5.6 million Fios Internet customers, up about 250,000 over the last year.
— Alan Breznick, Cable/Video Practice Leader, >Light Reading