Verizon’s Yahoo’s Internet Business Acquisition: Yahoo’s Internet Business Was Underperfroming
Verizon Communication (NYSE:VZ) announced on Monday that it was acquiring Yahoo’s core internet assets for $4.83 billion. [1] In this note, we look at how this price values each Yahoo’s user and how Yahoo fares with comparable media and ad companies on this front.
Yahoo has more than 1.1 billion monthly active users on its flagship online services such as Yahoo Search, Mail, Finance and Tumblr. These properties should provide a relatively valuable audience for mobile advertisers. Based on the average value per user, Verizon paid a ~4.4x multiple, which is far less than the industry average that can go upto $200 (as is the case with Facebook that has 1.65 billion user and a market cap of $330 billion). We compared three companies (i.e., Linkedin, Twitter and Yahoo) that have comparable sales and businesses on value per user, revenue per user and value to sales ratio. On all three parameters, Yahoo is underperforming the market and, for this reason, the Internet business was available at a discount.
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It is evident from the aforementioned calculations that with a $4.83 billion valuation, Yahoo’s monthly active users are valued at $4.39, which is ~90% less than Twitter’s users, and only 2% of LinkedIn’s active users. Yahoo also lags the other two companies in generating revenue per user, which at $3.73x per year is almost 1/10th that of Linked in and about ½ to that of Twitter.
This leads us to believe that Verizon has acquired Yahoo at a fair price, considering that has certain liabilities such as Yahoo’s agreement with Mozilla that mandates that new owner of Yahoo’s internet business will have to pay Mozilla $375 million till 2019.
Have more questions about Yahoo? See the links below:
- What’s Yahoo’s Revenue And Earnings Breakdown?
- What Is Yahoo’s Fundamental Value?
- How Has Yahoo’s Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Can Yahoo’s Revenues And EBITDA Grow In The Next 3 Years?
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Notes:
- Verizon to End Yahoo Survival Fight With $4.8 Billion Deal, July 24 2016 [↩]