This article has been updated to note new developments in Yahoo!'s sale process.
Verizon (VZ) - Get Report has long been viewed as the front-runner to buy Yahoo!'s (YHOO) core business. The telecom giant has deep pockets, is obsessed with creating a digital media empire and is unique among reported Yahoo! bidders in its ability to combine Yahoo! with another major online media asset -- namely, AOL -- to obtain scale and cost synergies.
It looks like Verizon is getting its wish -- the New York Times, the Wall Street Journaland Bloomberg report Big Red has struck a $4.8 billion deal to acquire Yahoo!'s core operations, and that it will be announced on Monday. Reports also generally state the deal includes real estate, but not some of Yahoo!'s patents, which will be sold separately.
It's no secret that Yahoo! is a declining business, but the numbers can still be jarring. The one-time Web colossus has guided for 2016 revenue (excluding traffic acquisition costs) of $3.4 billion to $3.6 billion, down 18% to 23% from 2014 levels. Operating income is expected to be in a $175 million to $275 million range, down sharply from 2014's $755 million. And there's no sign that sales will stabilize in 2017.
Declining traffic for many of Yahoo!'s biggest properties is clearly a factor, as the properties continue losing eyeballs to Google, social media platforms and rivals in various online media verticals. But the problems run deeper than that. Though it has launched a handful of quality mobile apps during the Marissa Mayer era, Yahoo!'s mobile presence still isn't on par with its web presence. And brain drain, both in engineering and sales, has hurt the user experience for many Yahoo! sites and more broadly affected the company's ability to monetize its content.
Verizon is likely hoping that combining Yahoo!'s smorgasbord of online media and advertising assets with AOL's own collection yields content synergies and the kind of publishing scale that appeals to major advertisers already committing huge sums to Alphabet's (GOOGL) - Get Report Google and Facebook (FB) - Get Report.
Chances are it's also betting that merging AOL and Yahoo!'s ad technology platforms, and leveraging the user data that Yahoo!, AOL and Verizon proper each possess, can deliver the kind of ad targeting that both lifts ad prices and click rates on its own properties, and lets it compete effectively against Google and Facebook for the business of third-party publishers.
Meanwhile, the considerable overlap that undoubtedly exists between AOL and Yahoo! in sales, engineering, management, administrative functions and elsewhere could produce major cost savings. Verizon is understandably hungry for new avenues of profit growth as its U.S. telecom service revenue growth flatlines amid continued landline phone disconnections and stiff low-end mobile competition from T-Mobile.
It all sounds great in theory. And in AOL chief Tim Armstrong, Verizon does have a capable manager to spearhead its efforts. But making the deal means successfully integrating many disparate Yahoo! properties and technology assets, and also figuring out how to stabilize Yahoo!'s business amid a brain drain that could easily worsen as the specter of major post-acquisition job cuts arrives.
And it also means successfully taking on Google and Facebook, two giants that have massive resources and that have been running circles around Yahoo! for many years.