Verizon buys Yahoo for $4.83B, marking end of an era

The acquisition is centered on Yahoo’s operating business; it doesn’t include all of Yahoo’s corporate assets – most notably, as the Verizon news release notes, it omits “Yahoo’s cash, its shares in Alibaba Group Holdings, its shares in Yahoo Japan, Yahoo’s convertible notes, certain minority investments, and Yahoo’s non-core patents”. It is expected to close in 2017’s first quarter.

The deal came after activist investors led by Starboard Value LP lost faith in Yahoo Chief Executive Officer Marissa Mayer, who was hired in 2012, and forced what became a protracted sale process.

Verizon has bought embattled online player Yahoo for USD$4.8 billion, with the communications giant building up its offering to compete with the likes of Google and Facebook. The Wall Street Journal noted, for example, that Yahoo’s share in the USA digital ad market is expected to be 3.4% for 2016, while Google and Facebook together account for more than half of the market, now valued at $69 billion.

Founded in 1994 by two Stanford graduate students Jerry Yang and David Filo, Yahoo started off as a simple hand-selected directory to the World Wide Web that was still in its infancy.

Fighting to stay current is a trend among cell phone service providers as of late, who more and more seem to be headed to play the role of, as Wired put it, being reduced to utilities, rather than power players in the digital media business. It proved that internet companies could indeed be profitable as other dot-com startups burned through millions of dollars.

The shares of the company were little changed in early trading yesterday at US$39.11, after closing 1.3 per cent up last Friday at US$39.38. Once Yahoo converts its name following the Verizon deal’s official close, the rest of these parts of the company will transition to a publicly traded investment company. To make matters worse, Yahoo failed to recognize the importance of social networking and was slow to make the leap into mobile devices such as smartphones and tablets.

Each boss had a vague idea of what Yahoo should be – a media company, an e-commerce site or, under Mayer, simply a company that addressed people’s “daily habits”.

“The short answer is that this will be a bigger competitor to Google”, said Greg Sterling, vice president of strategy and insight at the Local Search Association.

To boost traffic and revenue even more, Verizon could also ship some phones with Yahoo apps already installed.

Microsoft’s unsolicited bid for Yahoo! in February 2008 was rejected as undervaluing the company – three years later its market capitalisation was around half this, and it went through a number of CEOs in the succeeding years in a search for a competitive angle.

At the time of this article, Yahoo! carried a $36.9 billion market cap.

Facebook and Google dominate the United States digital advertising markets.

“With [Verizon’s] aggressive aims to grow global audience to 2 billion users and US$20 billion in revenue within the mobile-media business by 2020, Yahoo’s products and brand will be central to achieving these goals”, wrote Mayer.