Verizon Set To Close Yahoo Deal: Reviewing The Benefits And Opportunities

Verizon (NYSE:VZ) is expected to close its $4.5 billion purchase of Yahoo’s Internet assets on June 13, after Yahoo shareholders approved the deal last week. The deal should allow the telecom behemoth to play a lager role in the fast growing digital ad market, which is currently dominated by Google and Facebook. Verizon intends to combine Yahoo with AOL, which it acquired in 2015, naming the joint entity Oath. Below we provide a brief overview of what the deal could mean for Verizon.

We have a price estimate of $53 for Verizon’s stock, which is about 15% ahead of the current market price.

See our complete analysis for Verizon and Yahoo!

Complementary Ad Technologies, Potential Cost Synergies

With its 2015 acquisition of AOL, Verizon gained access to a robust programmatic and video advertising platform. Now with the Yahoo deal set to be closed, the company could make inroads into the search engine and native advertising market (native ads are typically formatted to resemble the content that they are placed around). Yahoo’s key advertising assets include Gemini – which combines search and native ads for superior results – and BrightRoll, which offers programmatic buying and selling tools for video, display and native advertising. This would effectively give Verizon a broad spectrum of ad tech assets ranging from programmatic video and display to native advertising and search. Besides the complementary technologies, the Yahoo deal could also bring about some cost synergies for Verizon, as there is likely to be an overlap with AOL’s operations, particularly in areas such as sales, administration and product development. There have been reports that Verizon intends to lay off about 2,100 employees after the deal closes, representing ~15% of the combined employees of Oath.

How Verizon Intends Take On The Digital Duopoly Of Google And Facebook

With the Yahoo deal, Verizon will hold a distant third place in the U.S. digital ad market, behind silicon valley behemoths Facebook and Google, which together draw about half the global spending on digital ads. Both the companies have massive audiences and robust ad targeting capabilities that are driven by their search, mobile and social media properties. While it’s unlikely that Verizon will be able to take on these companies at scale, it could bank on personal data from Verizon’s mobile customers (location and other demographic information), combining it with data gathered by AOL and Yahoo. Verizon also has a relatively large captive audience of about 1.3 billion users, via Yahoo properties such as mail, finance and sports as well as AOL’s websites such as Huffington Post and Engadget. The company is looking to grow the user base of these Internet properties about 2 billion by the year 2020.

Yahoo’s Content Offerings

While Verizon’s key rival AT&T has taken big steps to enter the media business with its 2015 purchase of DirecTV and its announced acquisition of Time Warner, Verizon has taken a more measured approach, choosing to build its products in house while bolstering its content via niche acquisitions. Yahoo should help the company further this strategy, given that it is significantly invested in content focused on four verticals — news, finance, sports and lifestyle. Verizon’s CEO recently indicated that the carrier plans to launch its own over-the-top streaming TV service later this year. The company could potentially bundle content from Yahoo and AOL with the live TV offering, allowing it to offer some differentiation over other players who do not offer original content (related: Does Verizon Have A Shot At Success In The Streaming TV Market?).

Data Breach Implications

After Verizon announced its intention to buy Yahoo in July 2016, the Internet company discovered that it had faced two massive data breaches during 2013 and 2014 that compromised hundreds of millions of users’ passwords and personal information. The 2013 breach is believed to be the largest theft of user data in history. While Verizon was able to renegotiate its purchase price down by about $350 million following the breach, it had also negotiated a deal that would partially offset the costs of future lawsuits relating to the data breaches, splitting the liability 50-50 with Altaba – the portion of Yahoo that is not being sold to Verizon.

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