Why Is Verizon Buying Yahoo!, Again?

If you haven’t noticed, the market has all of a sudden turned against Verizon’s (NASDAQ:VZ) decision to buy Yahoo! (NASDAQ:YHOO), at least based on media coverage. The two companies agreed on an all-cash acquisition fee of about $4.83 billion—some reports are putting the figure at $4.8 billion—which is pretty much the optimal valuation of Yahoo!’s core business.

This comes following a period of stalemate in which Yahoo! had appeared certain to sell below the current numbers that are being drafted across media platforms. In May this year, there were reports that bids had come in in the region of $2-$3 billion, which at the time, was roughly half Yahoo! Valuation of its core business, the one that’s being sold.

The media was pretty critical about the potential sale of the business at such low figures, but now that Verizon agreed to pay $5 billion, everyone seems to be perplexed by what’s this is all for. So did Verizon take a shot in the dark by acquiring Yahoo!’s core business? Let’s try to answer that question.

To begin, let’s look at Yahoo’s troubles. The company’s problems with its core business are deeply rooted in structure rather than service offering. In other words, Yahoo!’s core includes a wide variety of services, but it never really stamped authority in either of them. Of course, this meant that it commanded smaller numbers in terms of business compared to rivals. And with smaller numbers, comes the ability to interact with customers on a more personal level.

So is this why I keep reading that Yahoo! has one of the best customer support channels amongt internet information providers? I have been trying to see whether those channels included a Yahoo support number but all I could come across is what online customer service platforms offer. In that case, I would have to dismiss the claim for now, but that’s a case I could investigate further in the future.

Either way, every internet-based company seems to have customer service related problems including Yahoo!’s killer, Alphabet (NASDAQ:GOOG). However, Alphabet’s Google has been able to compensate for poor customer service with quality results when it comes to the product offering.

Another of Yahoo!’s problems has been to do with the inability to get the best out of its staff members, when Marissa Mayer took over as CEO a few years ago, the first thing she had to do was to streamline the company’s management and change the employee policy. This process resulted in the departure of several executives, as well as, staff members as she banned employees from working from home in a bid to restoring optimal return per every man-hour billed.

Then, of course, there was the obvious challenge of being an underdog to Google search despite having been in search business years before Google was founded. In short, Yahoo!’s ad-driven core business could not yield results with Google’s AdSense maintaining leadership even after the company decided to merge its ad network with Microsoft’s (NASDAQ:MSFT) ad service.

Nonetheless, one telecommunications company has managed to look beyond all these troubles and somehow, it believes something good could come out of the acquisition. So what exactly did Verizon see?

Verizon’s plan for Yahoo! is very clear. It wants to merge it with another of its internet-based acquisitions AOL, which it bought last year for $4.4 billion. Verizon has been pushing to augment its mobile advertising business over the last few years and its acquisition of key players in mobile platforms is expected to boost this campaign.

The company’s acquisition of AOL is expected to provide it with the edge it needs in gaining access to programmatic and video advertising network, as well as, a rich list of content that could help it in increasing its ad network. On the other hand, Yahoo!’s acquisition is seen by analysts as the perfect final piece in the company’s growing matrix of advertising channels.

This will provide Verizon with more than 1 billion monthly active users across Yahoo!’s web platforms, which include Search, Mail, Finance and Tumblr, as well as, more than 600 million active users on mobile platforms.

As such, Verizon is not looking at the level of revenues that Yahoo! brings to the books, but rather, how optimally it can use Yahoo!’s massive user base to its advantage.

Conclusion

In summary, Verizon’s acquisition of Yahoo! has stirred the market with some critics trying to make sense of the deal.

However, looking at the current numbers and Verizon’s recent list of acquisitions, it looks as though this telecommunications giant has spotted some synergies that could launch it in the forefront to battle Google in the search adverting market.