Finance

Verizon Seems to Really Want Yahoo

Telco said to offer $3 billion on the promise of video advertising 6/13/2016 8:00 AM Eastern

The second round of bidding for Yahoo should close this week, with Verizon Communications reportedly lobbing in a $3 billion offer for the one-time Internet icon’s Web assets.

 

That’s roughly half the value some analysts placed on those properties three months ago, and further proof that telco Verizon either has money to burn or truly believes that digital advertising will be its future growth engine.

 

Other bidders were expected to participate in the second round — CNBC’s David Faber reported some bids topped $5 billion, but included real estate and other assets not part of the Verizon bid. A third round of bidding on Yahoo, which put itself on the block in February, is also expected.

 

Most analysts are expect Verizon to end up with Yahoo because they believe that the telephone provider has the best chance of turning around the once-proud company. That bids are coming in at less than half the $4 billion to $8 billion range targeted back in February is a testament to the decline of the business.

 

STARK FORECASTS

Yahoo’s bankers released a “sale book” in April that estimated 2016 revenue would fall 15% and earnings would dip more than 20%. The book also estimated that Yahoo would need to shed about 1,500 employees, ending the year with about 9,000 workers.

 

Verizon has had a soft spot for ancient Internet icons — it purchased AOL last year for $4.4 billion— and talk is that AOL chief Tim Armstrong is behind the telco’s enthusiasm for Yahoo. According to some reports, Armstrong believes Yahoo’s digital ad technology will mesh well with AOL’s existing ad business.

 

Verizon chief financial officer Fran Shammo didn’t want to say much about the Yahoo speculation at the Bank of America Merrill Lynch Technology, Media & Telecom conference in London, though he did say the telco is serious about its “mobile-first” strategy.

 

Within the next three to six months, Shammo said, Verizon intends to “cross-pollinate” its products, including integrating go90 and AOL to help it broaden viewership.

 

“When you get down to it, viewership matters because viewership drives advertising dollars which drives the top line revenue,” Shammo said. “Yahoo has viewership. We’ll see whether we do move forward or we don’t move forward.”

 

MoffettNathanson principal and senior analyst Craig Moffett has been ambivalent to a Verizon-Yahoo pairing ever since the telco expressed interest in the assets.

 

“Generally speaking, we think Verizon’s strategy to turn to advertisers rather than users for the next leg of wireless revenue growth makes sense, even if we admit to having a hard time judging their probability of success,” Moffett wrote in April.

 

He added that although it probably isn’t a great idea to buy a shrinking asset (Yahoo) in a growing segment (digital ads), taking into consideration expected synergies and the relatively low price, it can’t hurt.

 

Shammo was most excited about opportunities on the mobile front, especially in short-form content. Verizon bought a 24.5% piece of shortform video pioneer AwesomenessTV in April and he said that its go90 mobile offering will focus on video snippets rather than longform content.

 

“I want to fill up the 10 times a day that you have 10 minutes free,” Shammo said. “I want you to come to my platform and digest 10 minutes of content from go90.”

 

But to pay for those 10 minutes, viewers are subjected to ads, and that’s where Yahoo could fit in.

 

While mobile ads are on the rise — Kleiner Perkins Caulfield & Byers partner and Internet guru Mary Meeker values the mobile ad market at about $22 billion — clients have complained that consumers aren’t watching them. That is backed up In Meeker’s June Internet Trends report, which claims 93% of mobile users are considering purchasing ad blockers and 81% mute video ads.

 

VIDEO ADS ON THE RISE

The push has been to make mobile ads more watchable, and that’s where Yahoo could come in.

 

Yahoo has sharpened its focus on short-form video and says video advertising is one of its fastest growing business segments. According to a blog around Yahoo’s May NewFronts, chief revenue officer Lisa Utzschneider said video advertising was up 64% in 2015 and continues to grow. Yahoo is focusing on producing more ad content — the ad unit produced 54% more video in 2015 than in 2014 and viewers are eating it up. Compared to a year ago, Yahoo video viewers are consuming 55% more content and spending 85% more time on average with it.

 

“That translates into meaningful opportunities for marketers,” Utzschneider said in her blog post.

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