Broken promise

by Scott Denne

Verizon’s struggles to extract value from its massive investments in digital media became official this week as the company announced that it would write down much of the value of its AOL and Yahoo acquisitions. Given the amount of value it’s lost across those two deals, there’s little doubt now that Verizon will never emerge as a prolific acquirer of digital media vendors, despite owning two businesses that were once among the most active.

In 2015 and 2016, Verizon paid a combined $9.2bn to acquire AOL and Yahoo to transform its telecom network – and the consumer data flowing through it – into a challenger to Facebook and Google. The anticipated benefits have failed to materialize. In the third quarter, Oath (Verizon’s name for the combined AOL and Yahoo business) saw its topline shrink by 7% to $1.8bn, putting the company well short of its 2020 annual revenue target of $10bn. As gains in mobile and video advertising have failed to compensate for declines in desktop and search, Verizon wrote down $4.6bn of the $4.8bn goodwill it carried on the combined transactions.

For would-be sellers of digital media firms, it could mean a major buyer is out of the market. Before joining the telco, AOL and Yahoo were among the most active acquirers of digital media – in the two years before Verizon bought AOL, the two companies spent a combined $2.8bn on 53 tech purchases.

Verizon’s Oath wasn’t nearly as active. According to 451 Research’s M&A KnowledgeBase, Verizon only acquired one company to add to Oath in the past two years, picking up full ownership of Yahoo’s Australian venture. The write-down makes it likely that trend will continue now that Verizon has officially owned up to its overpayment.