Verizon is preparing to purchase Yahoo's main assets — which include its search, content, mobile and advertising business — and possibly also some real estate.
Insiders familiar with the matter note that the $5 billion acquisition could be announced in the next few days. By sealing the deal, CEO Lowell McAdam's dream of transforming Verizon into a mobile media powerhouse would come closer to reality.
Verizon is leading the pack when it comes to U.S. wireless carrier size, with 112 million subscribers. As its sales and number of new users started to stagnate, the carrier looked at ways to counter the plateau tendency. That is why it branched out and now has departments operating in new segments such as telemedicine, video streaming and connected cars.
The quest for expansion prompted Verizon to buy AOL in 2015, for $4.4 billion. The purchase was a way for the telecom enterprise to ramp up its advertising and media businesses, which in turn complemented its mobile and fixed network operations. Should the carrier get Yahoo under its umbrella as well, it will rank $10 billion in investments targeted to making it a rival to ad leaders Google and Facebook.
The move will come with some unique pluses: Verizon has a clear view of the client's phone location and is aware of both their buying habits and hobbies. This could help in targeting ads with great success.
However, there are some who don't believe that Verizon is ready to go toe-to-toe with the existing ad leaders.
"The idea that buying Yahoo somehow positions Verizon to compete against Google and Facebook is laughable," says Jonathan Chaplin from New Street Research LLC.
He explains that the carrier's Yahoo and AOL businesses are too fragmented and competitive to be a game changer.
In theory, the acquisition of both Yahoo and AOL should put Verizon on a more equal footing with Google and Facebook, which are already fighting for supremacy over ad revenues. As Google and Facebook have their own challenges when monetizing their hosted content, Verizon could offer a third option for media companies, and the assets of AOL and Yahoo should support the process.
One notable tool that Verizon got from AOL was the automatic ad insertion, a quick way to pair up ad buyers to targeted ads.
Jeffrey Kvaal, analyst with Nomura Securities International Inc. is wondering how Verizon could get significant scale to boost the effectiveness of the targeted ad engine. He concludes that Yahoo's purchase might be the best choice for that.
Yahoo brings more than a billion monthly active users and a tiny but promising mobile business. When looking at Yahoo's ad technology portfolio, Verizon could benefit from BrightRoll, a selection of automated tools for buying and selling video advertisements. Yahoo also brings Flurry, the company's own analytics business.
Kvaal notes that Verizon's location data and understanding of subscriber viewing habits might be appealing to a number of advertisers.
Verizon started to develop its own free video-streaming service to rival YouTube and Facebook Live. Dubbed Go90, the service launched last December but the carrier did not unveil how many subscribers it has to date. Insiders familiar with the matter hint that the company will give more details on the matter during its Q2 earnings call next week.
