Verizon Could Benefit From Yahoo Purchase, but There Are Challenges Ahead

Verizon must find a way to incorporate Yahoo assets into a larger strategy, but that won't be easy.
By William Craig ,

Will Yahoo's (YHOO) new owner be good for both companies? 

Yahoowas acquired earlier this week, ending months of speculation. Verizon (VZ) - Get Report purchased the one-time titan of the Internet for nearly $5 billion in cash. The telecommunications company had emerged in recent weeks as the favorite to win what amounted to a bidding war for Yahoo. Five companies submitted offers for Yahoo.

But the relatively low purchasing price underscores Yahoo's decline, and it's unclear if Verizon will be able to make effective use of Yahoo assets. Shares of Verizon fell slightly in Wednesday trading. Verizon shares rose slightly.

Once one of the tech industry's giants, Yahoo has struggled mightily for several years to compete with major internet companies. But it has been unable to find a focused model that would generate advertising revenue. Yahoo CEO Marissa Mayer, who took over in 2012,  tried and failed to reinvent the company mostly as a provider of content, but also via acquisitions that didn't always seem to add up.  

The deal for Yahoo's core Internet properties pales to the $125 billion Yahoo was worth in its glory days. Verizon paid just $400 million more that the more than $4 billion Yahoo lost in 2015. It goes to show how fast fortunes can change with Internet companies. It also proves that it's better to sell too early rather than too late. 

Still, Yahoo is one of the Internet's most popular web properties with 200 million unique monthly visitors

Last year, Verizon purchased AOL for $4.4. That purchase gave Verizon AOL's advanced technology for selling ads and and delivering Web video. Verizon has been looking to enter the growing online video market. 

Yahoo and AOL resources are a potentially potent combination. 

Yet recent history is filled with tales of tech acquisitions that didn't work out.

Yahoo paid more than $1 billion for the popular blogging platform Tumblr and saw the purchase as an opportunity to reach a younger, more web-savvy audience that was no longer flocking to Yahoo's products.

But Yahoo grossly overpaid for the platform. Two years after the purchase, Yahoo wrote off an incredible $710 million of the purchase price as a loss.

The tepid response to Yahoo's sale underscores uncertainty surrounding Yahoo's most valuable asset, Alibaba

Most of Yahoo's value comes from its 15% stake in the Chinese e-commerce giant. But it's unclear what will happen to its holdings.

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

Loading ...