Yahoo & Verizon – Final execution.
Finally, Yahoo executes
Yahoo may have badly failed to create any value for investors in mobile, but its execution on the sale of its core business is finally generating significant value for its long-suffering shareholders.
Verizon will now pay $4.48bn to acquire the core business of Yahoo a reduction of 7% of $350m and the two companies will share any legal and regulatory liabilities that arise from the two massive data breaches that Yahoo has suffered. This is a triumph for Yahoo which is capitalising on Verizon’s apparent desperation to build a digital ecosystem. For the last 10 years Yahoo has neglected its Internet assets but it has still managed to enjoy high usage and engagement in the fixed Internet despite its failure in mobile. It is this engagement that Verizon is paying $4.48bn for.
However, recent events have given users the perfect excuse to finally close their Yahoo email account and move to something else. We have long believed that Yahoo Mail is the service that generates most of the usage and should users leave Yahoo, then the value that Verizon is attributing to Yahoo will have to be written off. Top of the list of Yahoo’s many misfortunes are two massive hacks, one of which took Yahoo 4 years to detect. Over the last 12 months, Yahoo has admitted that around 1.5bn user accounts have been compromised in two very large break ins. This is more accounts than Yahoo actually has, implying that every account that Yahoo has been compromised with a good number of its users having suffered the indignity twice. If this was not enough, Yahoo’s Q4 results showed improving margins solely due to cost cuts which deflected attention away from the fact that revenues are still falling, albeit more slowly than before.
On top of Yahoo, Verizon already owns AOL and is trying to rebuild its Go90 mobile video service using the team and assets acquired from Vessel in 2016. The problem we have with Verizon’s strategy is that it is late to game meaning that it has ending up acquiring all of the assets that no one else wanted. Furthermore, Yahoo and AOL have both badly failed to generate any traction on mobile but somehow Verizon seems to think that putting all of these together will create a thriving ecosystem.
This is of course possible, but if Yahoo was unable to hold onto the talent capable of executing this dream, Verizon has very little chance.
Consequently, instead of a thriving ecosystem, we see a bunch of disparate assets from which users are likely to drift away from at the first opportunity. The real winner here is Yahoo which is receiving far more value for this asset than it is worth and has also managed to halve its exposure to liabilities that it should be fully on the hook for. Combine this value with the continued strong performance of Alibaba and Yahoo Japan, and it is not difficult to still see upside in the Yahoo share price. Marissa Mayer may have been terrible at executing on a digital ecosystem but she seems to be a great salesperson.”
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