Yesterday, at the UBS Global Media and Communications Conference, Fran Shammo, Chief Financial Officer of U.S. telecom behemoth Verizon Communications Inc. VZ, hinted that the company may explore the possibility of acquiring Yahoo! Inc. YHOO, if the deal promises adequate value for its shareholders.
Internet-based information service provider giant Yahoo is currently struggling with its core businesses viz. mail service, online sports, financial and general news sections, and its vital online advertising technology, which includes video advertising platform, BrightRoll. However, Yahoo is yet to take a final decision pertaining to the sale of its web businesses. Naturally, the possibility of a takeover by Verizon is still at a nascent stage.
Nevertheless, in the event of the deal materializing, we believe it will be largely beneficial for Verizon. Since the beginning of 2015, the company has been focusing on mobile video offerings, online digital advertising and web-based content business as a diversification strategy.
In Oct 2015, Verizon launched its ad-supported mobile video service Go90, targeting the younger generation. To derive maximum benefits from its mobile video platform, in Jun 2015, the company took over AOL Inc. that provides advertising technology enabling automated buying and selling of ads online. In October, Verizon also acquired Millennial Media, a leading company that sells mobile ads across numerous websites and applications. Its advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.
In addition to online advertising tools, AOL provides popular online content through Huffington Post which has around 200 million strong audiences worldwide. Other websites include Tech Crunch, Engadget, Moviefone and MapQuest.
The core businesses of Yahoo perfectly complement Verizon’s focus areas. Notably, Yahoo boasts a significant user base that trails only Google of Alphabet Inc. GOOGL and Facebook Inc. FB. If the deal takes place, Yahoo’s online ad technology and popular content will be combined with AOL’s targeted ad technology and consumer data platform and integrated into Verizon’s massive subscriber base and Internet-based mobile video offering to provide a powerful data-driven targeted mobile ad platform.
Verizon is currently focusing on online content delivery, mobile video and online advertising for future growth. These businesses have the potential to generate significant revenues for the company given that its legacy telecom business is presently facing serious pricing competition.
According to market research company eMarketer, the global mobile ad market value is expected to reach $68.7 billion in 2015 from $43 billion in 2014. Also, by 2017, the market is likely to hold an opportunity worth $133.7 billion.
The acquisitions of AOL and Millennial Media have enabled Verizon to sell digital media services to large companies and social media firms by monetizing its massive wireless customer base. With an Internet giant like Yahoo in its kitty, Verizon can potentially gain a strong and extensive foothold in the global online content and advertising market.
Both Verizon and Yahoo currently carry a Zacks Rank #3 (Hold).
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