Why Is Verizon Interested In Bidding For Yahoo?
Verizon (NYSE:VZ) CEO Lowell McAdam has confirmed that the company is interested in bidding for Yahoo! (NASDAQ:YHOO), after the beleaguered company indicated that it was open to consider any “qualified strategic proposals” for its struggling flagship Internet business. [1] The move would be largely in line with Verizon’s recent strategy of building a broad mobile advertising network and bolstering its ad tech capability, as it looks to grow beyond its core wireless business. In this note, we take a look at what Yahoo’s Internet business could bring to the table for Verizon and how it might augment the company’s $4.4 billion acquisition of AOL last year.
We have a $53 price estimate for Verizon, which is roughly in line with the current market price.
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Why Is Verizon Betting On Mobile Advertising And Content?
The U.S. wireless market is becoming increasingly saturated, and driving meaningful growth from Verizon’s core business could become challenging. Mobile advertising, on the other hand, is growing fast, as people spend more time on their mobile devices. For instance, Verizon estimated that mobile will account for 80% of consumers’ media consumption time in the coming years. Ad spending is quickly moving away from traditional media such as TV and newspapers, and onto mobile devices. U.S. Mobile ad spending is expected to grow 38% this year to $42 billion, according to estimates from eMarketer, accounting for close to 21.6% of total media ad spending and 62.6% of digital ad spending. ((Mobile to Account for More than Half of Digital Ad Spending in 2015, eMarketer, September 2015)) Mobile advertising seems like a natural fit for Verizon, given its massive wireless subscriber base (roughly 112 million subscribers), customer data sets and its control over the “wireless last mile.”
Yahoo’s Content, Search And Native Ad Business Could Be Valuable For Verizon
Verizon has been making a steady push into the mobile advertising and content market. Last year, the company bought AOL in a $4.4 billion deal, gaining access to a robust programmatic and video advertising platform as well a vast library of original content. If Verizon were to acquire Yahoo, it could make inroads into the search engine and native advertising market. Yahoo’s key advertising assets include Gemini – which combines search and native ads for superior results – and BrightRoll, which offers programmatic buying and selling tools for video, display and native advertising. This would effectively give Verizon a broad spectrum of ad tech assets ranging from programmatic video and display to native advertising and search. This could potentially enable the carrier to compete with other tech giants such as Google. Moreover, Yahoo has a base of over a billion monthly active users on its key online properties such as Search, Mail, Finance and Tumblr, providing a valuable audience for mobile advertisers. Yahoo has also invested significantly in content, with a current focus on four verticals — news, finance, sports and lifestyle. This could help improve Verizon’s recently launched ad-supported mobile-video service go90.
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Notes:- Verizon CEO confirms interest in buying Yahoo, CNBC, February 2015 [↩]