Yahoo: What next?

Can Verizon create a mobile ad juggernaut from Yahoo's core assets?

Could this sign soon see the name Verizon pasted over it? Or the exclamation point shaved off?.

With its $4.8 billion sale to Verizon Communications (ticker: VZ), Yahoo (YHOO) will soon to cease to exist on its own, bringing 22 years as an independent web property to an end. That’s a remarkable run in the go-go world of digital content, but that fate was brought on by at least a decade of Yahoo stumbling to find itself. 

Shareholder activism was in large part responsible. Starting in March, the repeated pushing of Starboard Value CEO Jeffrey Smith paved the way for the breakup of a company that once ruled the Internet search engine roost.

As share prices stayed stagnant, Smith and other shareholders clamored for wholesale changes, including the ouster of embattled CEO Marissa Mayer. Over the last two and a half years, Yahoo stock has stalled at about $38 per share.

“Innovate or die,” says Anand Deshpande, CEO of Persistent Systems, a global technology company based in Pune, India “Although it’s been coming for a while, Yahoo is almost a poetic example of how digital disruption can and will disrupt anyone.”

Yet while Yahoo fades into the sunset as a stand-alone Internet pioneer, it’s far from dead in another sense—as Verizon has ambitious plans for its latest acquisition. And those plans are aimed at driving Verizon’s shareholder value up by tapping potential ad revenue.

The question is whether Verizon, in turn, can take Yahoo’s assets and rework them as a disruptive—and profitable—force.

“Verizon needs to reinvent itself into something more than a dumb pipe reliant on subscription revenue,” says Minnie Ingersoll, COO and Co-Founder of Shift Technologies, a car sales startup based in San Francisco.

“Trying to build an platform with enough content for advertisers to reach targeted eyeballs makes sense.”

But… Yahoo wasn’t exactly a long-planned acquisition on Verizon’s part, either. “Due to the auction nature of the process, very little integration planning has actually been done so far,” says Ingersoll, a close colleague of Mayer when the two were at Google.

“So even internally no one actually knows how the combination will look, and anything people have speculated on is just speculation at this point.”

By folding Yahoo in with its formal rival AOL—which Verizon bought last year for $4.4 billion—Verizon hopes to build a powerful content platform that it can push out through its expansive mobile technology network. Follow the bouncing cursor: mobile devices equal potential viewers, content attracts them, and “eyeballs” in turn attract advertisers with deep pockets.

“To assess these acquisitions, one really has to start with Verizon’s objectives,” says Daniel Korschun, Associate Professor of Marketing at Drexel University's LeBow College of Business in Philadelphia. “One of these is to expand into cloud and other services, especially internationally. In addition to the domestic market, these acquisitions provide technology and an international customer base.”

For Verizon, much is at stake. Over the same period Yahoo stayed flat, Facebook (FB) has soared 128 percent, and Alphabet Class A (GOOGL) is up 38 percent.

Meanwhile, Verizon definitely has a long way to go before grabbing a substantial slice of the mobile ad market. Alphabet and Facebook take in more than 50 percent of all U.S. digital advertising revenue—while Yahoo’s share is just 3.4 percent, according to U.S. News & World Report.

 

Still, Verizon paid a bargain basement price for a company with a market capitalization of $35.84 billion.

“I’d say they are very smart shoppers,” says Winnie Sun Managing Director and Founding Partner of Sun Group Wealth Partners in Irvine, California. “They are the largest mobile carrier and we know that users today prefer their mobile devices—and the population using mobile as their first point for content is only going to increase. Yahoo became a bargain purchase, and the email database alone is tremendously beneficial for Verizon.”

Even if Verizon can’t make the deal work, investors can reap a profit from it by focusing on the next high-tech takeover target. The Yahoo sale marks the latest in a series of high-profile deals in the digital content space, including Microsoft’s (MSFT) purchase of LinkedIn Corp.

(LNKD) and Facebook’s acquisition of Instagram.

One likely candidate for consolidation: Twitter (TWTR). Though it’s a much beloved and universally used service, Twitter has never figured out how to turn in solid, consistent profits. In fact, Twitter is down more than 45 percent over the last 12 months, trading at about $18.50.

And for weary Twitter shareholders the prospect of consolidation, by Verizon or any other suitor, is enough to make them shout, “Yahoo!”