How Verizon's Buy of Yahoo! Can Benefit the Company and Its Stock

Speculation over the bidding war for Yahoo!'s core business ended as Verizon announced itself the winner. Here is why Verizon is a great stock.
By Kat McKerrow ,

After months of speculation, Verizon Communications (VZ) - Get Report confirmed Monday that it will purchase the core business of Yahoo! for $4.8 billion, which should boost Verizon's stock.

And even though Verizon is the winner of the five-month bidding war for Yahoo!'s assets beating out rival telecom AT&T, the communications giant will also be the financial winner in the long term. By combining Yahoo!'s core business, which includes email and messaging services, advertising technology and online content sites, along with other products and services, with AOL, which Verizon purchased in May 2015 for $4.4 billion, Verizon is building up a formidable portfolio.

In the marketing realm alone, Verizon will have the strength to beat back heavy hitters such as Alphabet'sGoogle and Facebook.

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"The acquisition of Yahoo! will put Verizon in a highly competitive position as a top global media company and help accelerate our revenue stream in digital advertising," said Verizon Chief Executive Lowell C. McAdam in a statement.

Once upon a time, Yahoo! was one of the top independent Internet companies.

It was a true pioneer with both free email and search services, and it was one of the few among its class to survive the bursting of the dot-com bubble. At its peak, in 2000, Yahoo! had a market capitalization of $125 billion.

However, the company failed to keep up in the fast-paced online world when younger players such as Facebook moved in and introduced social-network and applications technology.

So why would Verizon be interested in scooping up a beleaguered and shrunken player? The telecommunication giant is set on building a massive digital video advertising platform.

This was its intention in purchasing AOL last year, as well as several other ad-related businesses, including a hefty chunk of Microsoft's ad technology business.

The traditional global mobile telecom business is slowing as the Internet changes the way people communicate. This includes everything from Facebook's Messenger, through which users can order pizza and flowers, and Microsoft's Skype, which allows users to make both video and voice calls.

As the country's top mobile provider, Verizon needs to focus on different aspects of technology, such as digital ads, to stay relevant, large and ahead of the game.

And because Verizon has never done anything in small measure, it is accumulating companies with relatively strong ad technology to build a huge platform that will rival Facebook and Google.

Verizon remains a good telecom company to buy for those looking for long-term profits. Just as a shifting focus to cloud computing is practically saving former software giants such as Adobe and IBM, digital advertising will keep the major telecoms afloat, and with the biggest arsenal of ad technology, Verizon will continue to lead the pack.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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