Contact: Scott Denne
Verizon moves to augment its media business with the $4.8bn purchase of Yahoo’s central assets. The deal, which wraps up years of speculation about Yahoo’s future in the new media landscape, will see its core business and operations head to Verizon to be integrated with AOL, while its investments and other assets will stay behind in a company that will be renamed and restructured as a publicly traded, registered investment entity.
Aside from licensing revenue from some of the noncore patents that Yahoo will keep, nearly all of its $4.9bn in trailing revenue will head over to Verizon. The transaction values the target’s assets at about 1x trailing revenue, compared with the 1.6x that Verizon paid for AOL last year. The discrepancy in value reflects the depth of the comparative technology portfolios. Both vendors spent heavily on ad network businesses in the back half of the past decade and early years of this one. More recently, AOL turned its investments toward programmatic, attribution and other advanced advertising technology capabilities. Yahoo doubled down on content while its ad network technologies aged.
This move is all about scaling Verizon’s media footprint. Both Yahoo and AOL have roots in the Web portal space. And both are selling to Verizon for similar prices. But Yahoo’s media assets are substantially larger. AOL generates roughly $1bn from its owned media properties – Yahoo pulls in 3.5x that amount. Owning Yahoo’s media properties will enable Verizon to offer greater reach to advertisers and therefore land bigger deals and at better margins than the ad network revenue that made up almost half of AOL’s topline. Also, having a larger audience for its owned properties will provide AOL’s ad-tech business with more data that it can use to improve its audience targeting.
Telecom services is a saturated market with few net-new customers. Most growth comes from winning business away from competitors. With this acquisition (and AOL before it), Verizon plans to leverage its investments in mobile bandwidth and distribution – its existing mobile and TV customers – to find growth in the digital media sector. According to 451 Research’s Market Monitor, digital advertising revenue in North America will increase 12% this year to $40.6bn, compared with just 4% growth for mobile carrier services.
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