There’s a lot of drama surrounding Yahoo (YHOO) right now, with investors wondering what management will do after scrapping its Alibaba (BABA) stock spinoff plans.
While management insists that it has made no decisions on what it will do to unlock shareholder value, Verizon (VZ) is a company whose name keeps getting mentioned as an acquirer of YHOO’s core Internet business, a move that makes too much sense for VZ to ignore.
Building Off VZ’s AOL purchase
Verizon is the nation’s largest wireless company, so it may seem odd for VZ to be interested in YHOO’s Internet business.
However, VZ bought AOL earlier this year for $4.4 billion. This acquisition acted against the direction that telecoms have followed in the past. However, Verizon saw upside in allowing companies to reach its large network of wireless, and even wireline, users via advertising.
AOL has built one of the most sophisticated platforms for managing and delivering advertisements across the Web. Further, AOL is particularly strong in video advertising, an area where Verizon has great interest after launching Go90. Still, one of the underlying catalysts for Go90 is that VZ needed content to deliver AOL’s ad technologies — something Yahoo could help with in a big way.
What Does This Have to Do With Yahoo?
Anyone who has followed Yahoo for an extended period of time knows that a Yahoo and AOL merger has been speculated about for the better part of five years, until Verizon pulled the trigger to buy AOL.
With the two companies having strong media assets and solid Web footprints, and given the potential synergies of AOL’s advertising platform coupled with Yahoo’s content-hosting capabilities, the speculated merger between AOL and Yahoo always seemed like a natural fit. Therefore, Verizon acquiring Yahoo’s core Internet business now makes sense so VZ can build on its previous purchase of AOL.
By purchasing Yahoo, VZ stock would gain Web assets like Yahoo! Finance, Yahoo! Mail, Yahoo! Sports, Tumblr and exclusive video content. Furthermore, Yahoo acts as a platform for third-party content, where Yahoo collects revenue by publishing that content to its large user base. Not only would this give VZ an alternate way to monetize its content, but also far more content for delivering ads and to offer its users.
With that said, the potential of Verizon acquiring these assets from YHOO is more than speculation. Not only did YHOO management cancel the long-awaited spinoff of 384 million Alibaba shares, but VZ executives Fran Shammo and Lowell McAdam have acknowledged that there could be interest.
Between the fact that VZ did purchase AOL, and that there are so many apparent synergies created from an AOL and Yahoo merger, it is highly likely that VZ will make a hard push for YHOO.
Bottom Line for VZ Stock
With about $5 billion in trailing-12-month revenue, acquiring YHOO might not have too much of an immediate impact to VZ’s $130 billion-in-revenue business, nor would it make an immediate impact to Verizon stock.
However, when combined with AOL’s advertising capabilities and Verizon’s enormous network, Yahoo’s content would add a giant piece of the puzzle that is key to what VZ wants to do long-term — a missing piece that could move Verizon stock higher over an extended period.
As of this writing, Brian Nichols owned shares of YHOO.
