Verizon, on the heels of announcing a plan to reduce its workforce by more than 10,000 people to clear room for its 5G wireless plans, said it would record a $4.5 billion non-cash goodwill impairment charge at its Oath unit, the home to former internet stalwarts AOL and Yahoo.
In a Securities and Exchange Commission filing, Verizon said the Oath unit has experienced pressures in 2018 that have resulted in lower than expected revenue and earnings performance.
“These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business,” Verizon said in the filing. “Oath has also achieved lower than expected benefits from the integration of the Yahoo Inc. and AOL Inc. businesses”
Verizon added that during its normal budgeting process, it formed a new five-year plan for the Oath unit that resulted in “unfavorable adjustments to Oath’s financial projections.” Therefore, the company deemed it necessary to record a goodwill impairment charge of $4.6 billion ($4.5 billion after-tax) in Q4. Prior to the writedown, Oath had a goodwill balance of about $4.8 billion, according to the filing.
According to Verizon, Oath had revenue of about $5.6 billion in the first nine months of this year, roughly one-tenth of the $97 billion the telco generated overall. In October during its Q3 conference call with analysts, Verizon said Oath would likely miss its target of $10 billion in total revenue by 2020.
Verizon purchased dial-up pioneer AOL in 2015 for $4.4 billion and plunked down another $4.5 billion for Yahoo in 2017 with the hopes of parlaying the well-known yet dated brands into success in the digital arena. The Yahoo purchase was delayed for months after a data breach at the search engine lowered the sale price by about $350 million.
In April 2017, Verizon combined the two units in a new division dubbed Oath and tapped AOL CEO Tim Armstrong to head the unit. After some initial enthusiasm, Oath stumbled as more swift internet video providers took market share. Armstrong, who joined Verizon from Google shortly after it purchased AOL, left Oath in September. The unit is now headed by K. Guru Gowrappan, who joined the company in April after stints at Yahoo and Alibaba Group.