Verizon doubles down on ancient web history

July 25, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Verizon is doubling down on ancient web history. The telecom giant on Monday said it is splashing out $4.8 billion to buy Yahoo’s core business. It effectively justifies rival T-Mobile’s tongue-in-cheek claim earlier this year that Verizon is having a mid-life crisis. Verizon boss Lowell McAdam, after all, is betting the deal will help attract digital advertisers by meshing the internet-search firm with AOL, another 1990s highflier Verizon bought last year.

It’s an appealing idea. Yahoo brings with it not just its search and advertising units, but also content like sports and finance that could play well with AOL’s assets like the Huffington Post and TechCrunch. Verizon will also get its hands on Yahoo’s 600 million monthly mobile users.

Yahoo shareholders, though, have an exceptionally gloomy view of the business. It doesn’t help that the division’s EBITDA is likely to be just $770 million this year, according to Thomson Reuters data, down from $2 billion a decade ago. But investors don’t even reckon the units being sold are worth anything. The overall company has around $5 billion in net cash, owns stakes in Alibaba and Yahoo Japan that are currently worth some $41 billion, yet Yahoo’s market value is just $37 billion.

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McAdam’s vision ought to resonate on Madison Avenue. Advertising executives are nervous about the twin powers of Alphabet’s Google and Facebook, which are expected to account for more than half of the U.S. digital advertising revenue this year, according to research firm eMarketer.

They have, though, shown little inclination to send more business to either of Verizon’s dot-com 1.0 duo. Yahoo and AOL’s collective slice of the $69 billion digital-ad market is expected to be 5.2 percent this year, eMarketer forecasts, and is likely to decrease to 4.8 percent in 2017.

That has allowed Google and Facebook to gobble up the lion’s share of the digital-advertising market. It may be that Tim Armstrong, who will run the combined AOL-Yahoo business, has a great plan to turn these two internet also-rans into a formidable force. History suggests otherwise.

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