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Telecoms giant hopes for ad revenue reward from £3.7bn Yahoo buy-up

Published 25/07/2016

Yahoo chief executive Marissa Mayer has failed to turn the company around
Yahoo chief executive Marissa Mayer has failed to turn the company around

US telecoms giant Verizon is eyeing a bigger slice of the online advertising market after snapping up Yahoo's core internet business for 4.83 billion US dollars (£3.7 billion).

Verizon will look to mount a challenge to Facebook and Google in the fiercely competitive digital advertising market by merging Yahoo with AOL, an online media company it bought for 4.4 billion US dollars (£3.4 billion) last year.

The sale will see Yahoo's email service, news websites, photo sharing platform Flickr and blogging site Tumblr shift over to Verizon, if the deal wins the backing of Yahoo shareholders and competition regulators.

However, Yahoo's cash, its shares in Alibaba Group Holdings and Yahoo Japan, plus a portfolio of patents, will continue to be held by Yahoo, although it will change its name and begin trading as an investment company.

The takeover is the latest twist in a turbulent saga for Yahoo, a company which once defined the internet but has succumbed to cost-cutting in a bid to stem falling revenues.

Lowell McAdam, Verizon's chairman and chief executive, said the deal would position Verizon as a major player in the mobile media market.

He said: "Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers.

"The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company and help accelerate our revenue stream in digital advertising."

Slated for completion in the first quarter of 2017, the deal will create a combined company with one billion users and more than 25 brands which will be primed for "continued investment and growth".

Verizon hopes by merging Yahoo with AOL - which owns media sites including the Huffington Post - it will be able to create more compelling apps and attract more advertisers.

However, the move has fuelled speculation that it could also spell the end of Yahoo boss Marissa Mayer although she has tried to quash rumours that she is stepping down.

Ms Mayer, a former Google executive, told employees in an email on Monday that she intended to stay without specifying for how long.

"I love Yahoo, and I believe in all of you. It's important to me to see Yahoo into its next chapter," she wrote.

"The sale of our operating business, which effectively separates our Asian asset equity stakes, is an important step in our plan to unlock shareholder value for Yahoo.

"This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social."

Yahoo has come under pressure from shareholders angry with a downturn in the company's performance over the past eight years as it lost out to the likes of Google and Facebook. Last year, Yahoo booked a 4.4 billion US dollars (£3.4 billion) loss.

The struggling internet giant put its core business up for sale in February after shelving plans to spin off its lucrative 33 billion US dollar (£23 billion) stake in Chinese e-commerce group Alibaba, which could have landed it with a tax bill of more than 10 billion US dollars (£7 billion).

It also announced plans at the beginning of the year to lay off around 1,700 employees in a bid to save 400 million US dollars (£282 million) a year to help offset falling revenues.

Linda Sullivan, partner and head of media and digital at Cavendish Corporate Finance, said the deal would lift Verizon's advertising revenues and pose a challenge to online rivals Facebook and Google.

She said: " Online advertising is a key area that Verizon is trying to enter and its move to enhance its online content operation through Yahoo's acquisition will inevitably unsettle Verizon's two competitors dominating the online advertising space: Google and Facebook. With Yahoo, Verizon will increase its projected digital ad revenues in the US from 1.8% to 5.2%."

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