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Verizon buys Yahoo’s core businesses for $5 billion

Internet behemoth Yahoo has been marching steadily toward the sale of its core assets for the last several months, and now, the New York Times reports that the sale is complete with Verizon serving as the buyer. An announcement was planned for Monday morning, but sources have already leaked the news, which may explain why neither Verizon nor Yahoo have commented on the deal as of yet.

verizon aquires yahoo

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Updated on 7-24-16 by Lulu Chang: Verizon buys Yahoo’s core business for $4.8 billion.

The purchase has been a long time coming. Yahoo signaled its intention to sell its digital business — which includes its advertising platform, news websites, email service, and the social network Tumblr — earlier this year, after deciding against spinning the division out into a separate company. Since then, Yahoo has been approached by a diverse range of suitors including news stalwarts CBS, The Daily Mail, News Corporation, and Time Inc; content giants Comcast and Disney; technology firms Google, Alibaba, and Microsoft; and a nearly endless list of private-equity and venture capital firms.

While Yahoo met with Dan Gilbert, CEO of Quicken Loans, and a group of investors as recently as last Thursday, and was reportedly entertaining offers from private-equity firm TPG, all those potential buyers ultimately paled in comparison to Verizon. Back in December, the carrier’s chief financial officer, Fran Shanmo, expressed a willingness to consider buying Yahoo’s business.

The prime draw is Yahoo’s lucrative media and advertising properties. Yahoo Japan, a sprawling Asian culture web portal that’s the product of a joint venture between Yahoo and Japanese internet company SoftBank, has been appraised at nearly $9 billion. Yahoo’s various internet ventures, meanwhile — which include search, Yahoo mail, and online publications like Yahoo Tech and Yahoo Finance — are worth an estimated $5 billion to $8 billion. And despite a dip in net revenue this year, Yahoo’s advertising division remains one of the largest and most profitable on the web: This year, it’s projected to generate $2.83 billion and command a 1.5 percent share of the online ad market.

What’s not for sale is Yahoo’s most lucrative asset –stock in internet retailer Alibaba. The company paid $1 billion for a 30 percent stake of the company in 2005, half of which it returned in 2012. But the company’s remaining investment has paid dividends: It’s now worth north of $25 billion.

Verizon has long been rumored as a potential purchaser. In recent years, the company, which derives most of its profits from mobile and landline internet subscriptions, has attempted to diversify. It purchased media company AOL for $4.4 billion in 2014, a deal that included The Huffington Post and tech blog Engadget. And it launched Go90, a mobile video service aimed at a “younger demographic,” in October of last year.

According to Recode, Verizon intends to merge Yahoo and AOL’s advertising networks to challenge rivals in the space like Facebook and Google. It’ll face an uphill battle — AOL had an estimated 3.3 percent share of the ad market in 2016, compared to Google and Facebook’s combined 64 percent — but Verizon executives are reportedly bullish on the resiliency of Yahoo’s brand and built-in user base. The company’s mail service alone has more than 280 million users, and it retains a 12.6 percent share of the desktop search market in the U.S.

For Yahoo, the sale is part of what CEO Marissa Mayer called a “multiyear transition” to a “more focused” operation as the company struggles to rebound from from years of unprofitability. Yahoo’s web properties, which collectively remain among the most visited in the United States with more than 200 million monthly visitors, reported an 11 percent year-over-year decline in revenue during the company’s most recent earnings call. Yahoo laid off 1,000 employees, or about 10 percent of its workforce, in the first quarter of this year.

Analysts blame much of Yahoo’s recent travails on its failure to transition to mobile. In the first quarter of 2016, the company made just $250 million in revenue from smartphone and tablet users. Facebook, by comparison, made $4.5 billion in the fourth quarter of 2015.

Ballooning costs didn’t help. Thanks to investments like $20 million for rights to the National Football League’s first streaming-only game broadcast (the Buffalo Bills versus the Jacksonville Jaguars) and the $160 million acquisition of shopping site Polyvore, the company’s expenses climbed an average of 21 percent in 2015.

Perhaps unsurprisingly, more cost-cutting is in the company’s future. Future downsizing will include selling off Yahoo’s real estate in Burbank and Santa Clara, California, Dubai, and Milan; unloading unused patents; and shuttering up to seven digital publications in categories like parenting, food, and travel. And the company intends to lay off 15 percent of its 11,000 staffers in the coming months.

Yahoo’s board sees its core business sell-off as a springboard for revitalization.

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