Verizon Communications Inc.'s interest in Yahoo has reached its peak when the telecom giant announced its plan to make a bid for Yahoo's Web business next week, a Bloomberg report said.
To further jazz up the bid, Verizon is also reportedly offering to buy Yahoo Japan's stake in the company, with an estimated value of $8.5 billion.
With Yahoo Revenue Dropping, What's In It For Verizon?
A Re/code report reveals that Yahoo expects a 15 percent fall in revenue for 2016, shrinking earnings by more than 20 percent. The company is also cutting headcount and scrimping on expenses to mitigate its dour prospects.
Analysts surmise that this negative can be a positive for Verizon. While Yahoo is a great brand, the company's dismal performance under its CEO Marissa Mayer has undervalued its worth as an Internet giant. Verizon and other interested buyers can zero in on Yahoo's financial woes to haggle for the right price.
In a previous announcement, Verizon CEO Lowell McAdam said that the company runs on a three-tier strategy: great connectivity, owning a groundwork to drive traffic to its network and owning content that is consistent with its ecosystem.
When asked in an interview with Jim Cramer of CNC's "Mad Money" if a Yahoo acquisition would support Verizon's three-tier strategy, McAdam had this to say, "We have to understand the trends that we are seeing in some of their results now. But then, at the right price I think marrying up some of their assets with AOL under Tim Armstrong's leadership would be a good thing for investors."
Observers take this to mean that Verizon wants to attract millennials and teens who prefer watching videos on their mobile devices than on television. Yahoo has invested heavily on mobile Internet and video growth. Its mail, sports, finance and video sites are visited by more than 1 billion users, an enormous addition to AOL's 2 million and Verizon's 105 million wireless subscribers. This kind of massive Web traffic is what Verizon is looking for to lure a smartphone-obsessed generation.
Verizon is also bent on getting a larger piece of the advertising pie, a valuable source of revenue. Yahoo offers a mammoth user base in a well-defined niche.
Alphabet Inc.'s main division, Google, is so far the only potential competitor of Verizon in the Yahoo acquisition.
Other carriers that were earlier expected to acquire a stake in Yahoo have either lost appetite or are pursuing other options. AT&T recently bought DirecTV for $48.5 billion and is focused on integrating the two companies. Comcast and Microsoft decided not to make a bid while Time Inc. and private equity funds Bain and TPG are evaluating their moves to either pair with each other or back a strategic buyer.
This seeming disinterest makes a Verizon-Yahoo deal more likely to push through.
