Verizon Has Some Pretty Ambitious Goals for Its New Oath Digital Media Business - TheStreet

AOL boss Tim Armstrong laid out his ambitions for Verizon's (VZ) - Get Report  newly-created Oath digital media business in the telecom's analyst meeting after the close Monday, putting the unit alongside dominant online ad groups Facebook (FB) - Get Report and Alphabet's (GOOGL) - Get Report Google.

"Facebook is social. Google is search," Armstrong said. "We're going to be brand advertising."

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Oath will include more than 25 media and tech brands including AOL, Yahoo! (YHOO) and HuffPost. Armstrong says the company wants to boost users of the sites from 1.3 billion to 2 billion by 2020, and generate between $10 billion and $20 billion in sales.

"Revenue-wise, we'll be a Fortune 350 company, roughly the same size as NetflixNFLX and (CRM) - Get Report , and hopefully, more profitable," he said.

Netflix and Salesforce had $8.8 billion and $8.4 billion in sales, respectively, last year, FactSet reports.

Verizon has not yet provided annual revenues for its digital media properties, but in the last two quarters, digital media sales totaled close to $1 billion, minus costs to obtain traffic. And Yahoo!'s annual sales are around $5.2 billion, according to FactSet.

Verizon should have large ambitions, Ovum Research Director Mike Roberts said, given the size of the market, its investments in digital media and its mobile network. Ovum expects online digital advertising spending to grow from $126.4 billion in 2016 to $158.6 billion in 2021, while mobile advertising expands from $64.1 billion in 2016 to $134.2 billion in 2021.

The telecom and its duo of legacy Internet brands AOL and Yahoo! face challenges, however.

"Verizon has cobbled together its digital media business via a string of acquisitions, which has left it with a jumbled portfolio of digital platforms and consumer-facing brands, some of which have seen better days," Roberts said.

Keep in mind that to get the most of the booming digital market, Oath has to compete against Facebook and Google.

Oath can build on its "global reach" and "unprecedented access to consumer data and behavior," said Ezra Kucharz, former president of digital media at CBS (CBS) - Get Report .

"They will have the greatest opportunity, outside of Google and Facebook, to dominate digital brand advertising if they can get all of their products and platforms 'talking' together," Kucharz said.

Winning over consumers will be another challenge in itself. "Failed attempts at new content, products and platforms, at the legacy AOL and Yahoo businesses, have decreased their relevance in the minds of consumers and marketers alike," Kucharz added, noting that Armstrong has a capable team.

So can Oath meet Armstrong's projections?

"The range they gave was a wide one -- but it seems like if they can leverage Verizon's base with the existing AOL/Yahoo assets they have a decent shot," Macquarie analyst Amy Yong said. "AOL/Yahoo have a lot of consumer brands, but the question is if they scale them up."

Verizon is looking to Oath, as well as its telematics business, to offset its stagnant core wireless and wireline businesses.

Wells Fargo analyst Jennifer Fritzsche suggested in a Tuesday report that the units will be the "future growth machine" for the New York telecom. If Oath is able to generate about $15 billion in sales, the mid-point of Armstrong's range, it would represent 12% of Verizon's current sales.

Oath will target mobile and video ads, with Armstrong saying that the company has an opportunity as digital media plays a larger role in influencing consumers, projecting that advertising will become more expensive. 

Armstrong described a scenario that would meld Verizon's strengths of digital advertising and mobile services, as a customer strolled through a hypothetical market.

"If you think about a consumer who goes to a grocery store with an empty shopping cart and you try to intercept the person with end-aisle displays or things like that, versus somebody who's got a preloaded digital shopping cart, the expense of trying to convert somebody into a new product in the digital environment, I think is going to be much more expensive," he said.

Oath will have to compete with the likes of Snap (SNAP) - Get Report  as it tries to influence millennial grocery shoppers. Jim Cramer and the AAP team noted recently on the efforts Facebook has taken to defend its social media lead. Get a free trial subscription to Action Alerts PLUS.

Verizon's digital media businesses may be able to land within Armstrong's wide range of projected sales. But as far as attaining the dominant standing that Facebook and Google have achieved in social media and search, respectively, it will be hard for Armstrong to keep his oath.

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Editor's note: This article was originally published at 12:14 pm ET.