Dropping billions of dollars over the course of one year is no joke, but will Verizon be laughing all the way to the bank with its purchase of Yahoo and AOL?
In July, Verizon Wireless signed a deal to buy Yahoo for $4.8 billion in cash. This was on top of last year’s deal to buy AOL for $4.4 billion, also in cash. The deals are expected to close early next year. Both businesses combined generate about $7 billion in annual revenue, according to William Cohan in the New York Times.
Verizon threw off nearly $50 billion in cash flow over the past 12 months, and Cohan is questioning whether delving into the world of digital advertising was worth it, given competitors Google and Facebook have market caps of $530 billion and $363 billion, respectively.
Upon closing, the companies will report to Verizon EVP Marni Walden, a contender to replace Verizon CEO Lowell McAdam when he retires. AOL CEO Tim Armstrong, credited with creating Google’s online ad sales team, appears to be the man who will run both AOL and Yahoo for Verizon, according to Cohan.
Though Verizon declined to discuss the rationale behind both deals, a spokesman did say the company “is focused on moving forward.” When the AOL acquisition was announced, Walden said, “[W]e intend to become the No. 1 global media technology company for creators and advertisers and consumers. Our vision is to provide customers with a premium digital experience based on a global multiscreen platform.”
The combined companies created a “scaled mobile first platform directly targeted at the global advertising industry.” McAdam also said during Verizon’s second-quarter earnings call the company sees “tremendous opportunity” in digital video, with a predicted $180 billion in sales by 2020.
The acquisition means Verizon can become a major competitor in mobile media, according to McAdam.
Cohan admits he doesn’t know what the acquisition means for Verizon, other than it’s trying to snare a bit of the digital advertising business away from Google and Facebook. “[E]ven if AOL and Yahoo end up with only 5 percent of the market, by 2020, that will be nearly $4 billion in new revenue for Verizon, which is still just a fraction of its $130 billion in trailing 12 months’ revenue,” writes Cohan.
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