Telecom Giant Verizon Communications Acquires Yahoo

The internet is abuzz with the news that telecommunications giant Verizon Communications (NYSE:VZ) is to acquire U.S. internet company Yahoo (NYSE:YHOO) for nearly $5 billion in cash. This deal doesn’t include Yahoo’s stake in Alibaba (NYSE:BABA), the Chinese tech monolith.

While $5 billion is nothing to sneeze at, this valuation falls well below the $44 billion that Microsoft (NASDAQ:MSFT) for the company back in 2008 or its $125 billion valuation back in the dot.com boom. For its part, Verizon seems to be making a trend of acquiring once-great internet giants, who have fallen slightly by the way-side. Last year, the company acquired AOL (NYSE:AOL) for $4.4 billion.

What this means for Yahoo

According to the BBC, Yahoo made a net loss of $4.4 billion last year. However, despite this financial net loss, celebrity CEO Marissa Mayer appeared to be making strides towards rehabilitating the brand. During her four year tenure at Yahoo, Mayer acquired 53 companies costing a grand total of $2.3 billion, in order to support the company’s “MaVeNS” businesses. According to Gizmodo, MaVeNS, an acronym stands for mobile, video, native advertising and social. This initiative was a step in the right direction, as Yahoo was rapidly loosing out due to a severely underdeveloped mobile division. However, it appears to be a case of too little too late.
Mayer was also responsible for the $1.1 billion acquisition of the social networking platform Tumblr and the hiring of Katie Couric of the company’s “global anchor,” a $6 million per year news anchor position. Despite these drastic changes, the company’s long term struggles didn’t abate. The question that remains now, therefore, is what will happen to the Yahoo brand?
Mayer has voiced a commitment to remaining with Yahoo throughout its transition into Verizon. She stated that “Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL.” Furthermore, the BBC reports that she e-mailed her staff her intention to stay on with the company, writing that “I love Yahoo, and I believe in all of you. It’s important to me to see Yahoo into its next chapter.”
However, what happens when this transitional chapter comes to a close remains to be seen. The Yahoo brand has been a stalwart presence on the tech scene since the internet boom. However, whether it will retain any of its old cache once it is entirely subsumed into the Verizon brand remains to be seen.

What this means for Verizon

For its pert, Verizon is hoping to enhance its presence within the digital advertising space through this acquisition. Due to its background as a dominant US mobile phone network, Verizon already has a store of data from smartphone users that it could exploit more effectively. Meanwhile, Yahoo, despite its many shortcomings, is experienced in creating content. With 600 million monthly active users, Version could leverage this combination of content and consumer data in order to take on the digital ad market.
With major tech players like Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) already cornering large portions of this market, it’s a bold move. However, the way the market is going, it looks like this bold move is also a necessary one. This year, the global ad market is expected to surpass $100 billion, and for the first time in history, digital ads will account for more than half of all spending. Therefore, companies are vying to get a piece of the market now, lest they get shut out of the next big trend in tech (as was the case with Yahoo, when they failed to make necessary inroads into the mobile market).

What this means for investors

If you are a long-time supporter of Yahoo, it looks like you will be transferring your allegiance to Verizon. However, the investor impact is going to reverberate well beyond these companies. Verizon’s interest in the mobile advertising game and its willingness to pay for it is a clear signal that this market is one to watch.
Notably, the mobile ad market has some interesting small cap players that are set to do big things. For instance, SITO Mobile (NASDAQ:SITO) is a provider of mobile location-based advertising platform serving businesses, advertisers and brands. The company has seen a whopping 84.62 percent gain since the beginning of the year, indicating that the company is performing very well. Therefore, the Verizon-Yahoo acquisition deal means more than it might initially appear. Although it is a landmark moment for the two tech companies, it is also a clear indication that the mobile ad market is one of the hottest ones to watch in the coming months.
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