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Verizon Communications Inc. (NASDAQ: VZ) announced this Monday that it was going to buy Yahoo (NASDAQ: YHOO) for $4.83 billion. The company has high hopes to create a new online powerhouse through their new acquisition.

Yahoo’s Inc. operating business, which includes advertising technology and other popular content and consumer services (search, news, finance, sports, video, and email) will be part of Verizon. Same is the case for the social network Tumblr and, outside of the online space, the Yahoo’s headquarters in California, Yahoo’s Sunnyvale, was also sold to the telecommunication company.

On top of the purchase price, Verizon will pay $1.1 billion out to Yahoo’s employees ‘restricted stock. In cash. The purchase carries a risk for Verizon that has but one year of experience in the digital content business.

AOL and Yahoo could provide the carrier with a huge network platform

AOL, originally known as America Online, is a global mass media corporation based in New York that also invest in big news media websites such as The Huffington Post. It was bought by Verizon in June 2015 for $4.4 billion (50 dollars per share). After that, the company acquired several tech properties from Microsoft to bolster its advertising-tech capacity.

By pairing Yahoo with AOL, the masters of the ancient times of the internet, Verizon will end up with a media network that could represent a competition for leading digital advertisers, Google and Facebook.

“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,” said Verizon’s Chairman and chief executive, Lowell C. McAdam.

Why is Yahoo selling? 

Yahoo is no longer the Internet portal giant it used to back in early 2000. To sum it up, Yahoo! Search is currently the third most used search engine in the world, five times behind the omnipotent Google, and even Bing. The old search engine was struggling against minor competition such as Baidu, Ask, and AOL.

The usage of Yahoo’s search engine has fallen 12% during the current year, while the revenue dropped by three percentage points. Consequently, the company has lost traffic and advertising revenue, and is currently behind Google, which received 242 million visitors in May 2016, and Facebook, with 209 million visitors in the same month. Yahoo is third with 204 million viewers.  And AOL, by the way, is number 7 with 153 million visitors.

Nevertheless, Yahoo profited handsomely in 2014 with owned companies Alibaba, and Tumblr (almost $8 billion, the highest mark of its career), and then lost $4.4 billion in 2015 due to restructuration. These side projects did not stop the continuous fall of advertising revenue. So, over the past ten years, Yahoo has not found a winning strategy in search, social media, and video, and it seems it has given up selling itself to Verizon for a small sum.

The sale of Yahoo’s business marks the end of the company’s 22-year independent run since it was founded in 1994 by two Stanford graduates. It quickly became the main entrance to a new and entangling world, but ultimately fail to survive Google’s monopoly and never fully entered the social media and mobile devices industries.

It’s game over for Yahoo Inc., and the final price is a far cry from the $45 billion offer by Microsoft back in 2008.

Experts once estimated Yahoo was worth $130 billion, so it was a sweet deal for Verizon

Current Yahoo’s CEO, Marissa Meyer, raised the companies’ stock value to its highest levels in years, and now expects to carry on during the Verizon experience. No matter, if she doesn’t because she can go home with a well-earned severance package of  $57 million.

“We set out to transform this company, and we’ve made incredible progress. We counteracted many of the tectonic shifts of declining legacy business, and build a Yahoo that is unequivocally stronger, nimbler and more modern,” said Ms. Mayer to the staff in an email.

Yahoo’s shareholders will still hold a 15 percent stake of the Chinese retailing commander Alibaba, worth about $32 billion; and a 35.5 percent share, about $8.7 billion, in Yahoo Japan.

The sale arrived after a five-month bidding process that saw interest of other media groups, including Daily Mail; or Verizon’s direct competition, AT&T. Verizon, U.S. largest wireless carrier, was always the clear front-runner. Under its command, Yahoo will change its name and transition to become a publicly traded investment company.

The deal is expected to wrap up the first quarter of 2017. The company will operate independently until then.

Source: New York Times