What's going on?
According to various media reports, US telecoms giant Verizon is set to buy Yahoo for about $5 billion. As we’ve reported before, Yahoo held an auction for its core operating business (think: Yahoo Finance, Yahoo Sports, its search engine, etc.) – and it looks like Verizon was the winner.
What does this mean?
Verizon is described as a telecoms company because it’s a wireless communications provider (like AT&T and T-Mobile), but it’s also becoming a big player in digital media. Last year, Verizon bought AOL and it’s thought that there are lots of “synergies” between AOL and Yahoo (e.g. using AOL’s ad engine to power ads on Yahoo). Creating a media business – and therefore a new revenue stream – is a big priority for Verizon and, since Yahoo websites are collectively the 3rd most visited in the US, Yahoo gives Verizon a big presence in one hit.
Why should I care?
For the stock: Its “operating” business is only a small part of Yahoo’s value.
As a whole, Yahoo is worth close to $40 billion, but the bulk of that value comes from the stock it owns in Alibaba (in which it was an early investor) and Yahoo Japan (which is a separate company). The original plan was to sell these different investments, but if Yahoo were to sell them, it would likely have to pay a big tax bill. So it’s selling its core business instead – and $5 billion is about the price that people were expecting it to fetch.
The bigger picture: Yahoo could have been massive with the right strategy and execution.
Yahoo is being sold at a valuation that’s equivalent to about 1% of Google’s value (the two companies both started life as internet search engines in the 1990s). At various times in its life, Yahoo has had products that have made other companies extremely valuable (messaging services and social media, for example, as well as, of course, the search engine itself) – so it certainly had a chance. The post-mortem on Yahoo’s life as a standalone business will probably fuel plenty of business school studies, but ultimately it failed to pursue the right strategy at the right time.