Now that Verizon (VZ) has finally renegotiated its purchase of Yahoo!'s core assets, hacking $350 million off its initial purchase price, the real challenge begins.
Verizon is aiming to generate $20 billion in 2020 sales from the mobile media unit that draws on Yahoo, AOL and its other digital properties. The telecom still needs approval from shareholders and regulators, but expects to close the deal in the second quarter and tackle its outsized growth targets.
"That's a tall order," said Roger Entner of telecom consultancy Recon Analytics of the $20 billion goal. The size of Verizon's target base requires content that would play across multiple continents. Facebook (FB) and Alphabet's (GOOGL) Google benefit because users provide content and searches that drive advertising. "You need a lot of inventory in a lot of different languages," Entner said.
Whether the telecom gets there by growing its existing businesses or by making more acquisitions, it has a long way to go. The telecom will be hard-pressed to meet its goal and may have to borrow from the playbook of rival telecom AT&T (T) and be more aggressive in the M&A sphere.
Verizon reported that its fourth-quarter digital media revenues came to $532 million, but did not reveal full-year results for the digital media properties. Researcher eMarketer put global digital ad sales for AOL and Verizon's other digital properties at $1.56 billion in 2017 net of payments to partners that drive traffic to Verizon's sites.
For its part, Yahoo is on track for just under $3.5 billion in total sales in 2017, according to the analyst consensus compiled by FactSet, while eMarketer puts digital ad sales net of traffic acquisition costs of $3 billion. To hit its 2020 goal, then, Verizon would have to roughly quadruple sales from Yahoo and its own digital portfolio, absent any other acquisitions.