Assuming the company still wants to buy Yahoo after a massive hack of 500 million of its email users, Verizon will own properties generating about $4.6 billion a year in digital ad dollars, according to eMarketer research. That’s still just a fraction of Facebook’s $12.1 billion and Google’s $53.1 billion.
And unlike its forecasts for Facebook and Google, eMarketer projects no growth for Verizon’s piece of the pie even while the overall pie is growing—by as much as 20% a year, based on an estimate from Pew Research…. What’s worse for Armstrong, and everyone else competing for ad dollars, is Morgan Stanley’s assertion (paywall) that 85% of every new digital ad dollar in the first quarter of 2016 went to Facebook and Google.
Kara Swisher has a short interview with Verizon/AOL’s Tim Armstrong on the Yahoo! buy, which is still “pending of course.” It’s hard to take any interview about a pending acquisition on super face-value (no one wants to show their hand), but there’s some good indication that Verizon followed the “we’ll sort out the strategy details post-sale” plan. Armstrong himself says they’ll be working on figuring out differentiating, and “sources” say:
Verizon has had little insight into a number of issues, including the terms of the contracts with key employees, that it will need to make plans for the future.
I like the theory that the goal is, really, just to optimize the existing business:
“The deal that we contemplated is about growing the company and did not start with synergies,” said Armstrong. “We will be walking through a pretty direct process about what is structure and then cost structure and there will be synergy, but it is not at the top of our list.”
That seems like a low-risk plan. They’d be the biggest site by eyeballs in the US, which ain’t bad.
Also, more coverage from Reuters on the “RemainCo” company of Alibaba and Yahoo! Japan, and a cameo from Rita McGrath in a Will Oremus’s piece at Slate:
“It’s a beautiful example of a company that has a lot of indispensable pieces, but they don’t add up to an indispensable whole,” says Rita McGrath, professor of management at Columbia Business School. Yahoo’s problems, she believes, stemmed from “a fundamental unwillingness to choose” what kind of company it wanted to be.
And, 451 has their report out, by Rich Karpinski and Scott Denne. Some highlights:
- “AOL generates roughly $1bn from its owned media properties – Yahoo pulls in 3.5x that amount.”
- My summary of one of their points: as mobile use grows and grows, over the next 5-10 years, there’s a window for new top-dogs to emerge and take market-share. Seems like a legit theory. 451 describes the market here as: “opportunities in telecom data as a service, a market combining digital advertising, proximity marketing and an array of big-data insight services that 451 Research forecasts will grow to a $79bn addressable opportunity by 2020”
- They’re not big on the advertising technology and networking component in Yahoo!.
- There’s some indication that Verizon’s digital business is doing well, so maybe they’re pretty good at integration acquisitions.
- There’s also details on the financials of “RemainCo.”
Verizon is acquiring most of Yahoo! $4.83bn in cash, to be combined with their AOL purchase. As a wet finger in the wind reckoning, this feels like it’ll put Verizon as a distant third place in eyeballs and ad revenue: that’s probably what the business case is targeting.
- Yahoo! was at ~$4bn runrate (based on $1.09bn in revenue last reported quarter). Revenue has been declining steeply, down 11% q/q.
- Valuation here is tricky, since Verizon is only buying “core assets.” One back of the envelop analysis put the “core assets” at $1.7bn, suggesting a valuation of ~2.8x.
- Combined with AOL and other Verizon properties, the company says this will result in “global audience of more than 1 billion monthly active users — including 600 million monthly active mobile users.”
- There’s fierce competition from Facebook and Google: “According to data from e-marketer in March, Yahoo’s worldwide net digital ad revenues will fall nearly 14% this year to $2.83 billion, from $3.28 billion in 2015. In contrast, Google will see a 9% increase while Facebook will be up by nearly a third year-on-year (31%).”
- Despite this small pot of marketshare-by-revenue, at least in the US, the combined company will be in the top three of marketshare-by-eyeballs. If you were an i-banker looking at that in your spreadsheet, you’d think: we just need to increase eyeball-to-cash conversion productivity and – POW! – synergies!
- As a reminder, AOL includes “The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com.” Yahoo! Mail has 225m monthly active users.
- It keeps getting described as an “assets sale,” because Yahoo’s stake in Yahoo! Japan and Alibaba will stay with Yahol! As the NY Times puts it: “a 15 percent stake, worth about $32 billion based on its recent share price, in the Chinese internet company Alibaba and a 35.5 percent stake, worth about $8.7 billion, in Yahoo Japan.”
- This will create some interesting post-deal structure for the numbers. The entire Yahoo! company is much bigger than that 1.1x valuation: “Yahoo! stock, which is up 18% this year, had a total market value of $37.4 billion at its close on Friday of $39.38.”
- It’s pretty clear that the company wants to sell the remaining assets.
- Rival bidders: “Suitors included Quicken Loans founder Dan Gilbert, communications giant AT&T and private equity firms Vector Capital Management and TPG.” AT&T seems to have been the main competitor. More from Kat Hall: “The telco was one of 40 suitors rumoured earlier this year to be interested, including Google parent Alphabet, Time and even Daily Mail parent DMG.”
- It increases Verizon/AOL’s advertising marketing share, but Facebook and Google still dominate: “Verizon with AOL currently holds 1.8 per cent of the $69bn US digital ad market, according to The Wall Street Journal. Yahoo controls about 3.4 per cent, while Google and Facebook combined make up half of the total.”
- Timing the sale of a declining asset is everything: “back in 2008, it turned down a $44 billion offer from Microsoft”
- See some in-depth history and analysis from Timothy Lee over at Vox. The thesis seems to be: the company could adapt beyond it’s initial success in the 90s and never found a new identity beyond being a “media company.”
Originally purchased for $1bn in 2013, after failing to meet the $100m 2015 revenue goal, written down:
A bit of simple arithmetic puts Tumblr’s value after these writedowns at about $290 million. This is not only less than a third of its purchase price, but it’s also less than the value of Tumblr’s assets when it was acquired two years ago.
The notion that some in the media – who usually have no specific knowledge about Yahoo – have recklessly put forward that Yahoo is “unfixable” and that it should be simply “chopped up” and handed over for nothing to private equity or strategies is insulting to all long-term public shareholders.
- Check out how they make their case
- Use visuals and charts
- The informal nature of their language, e.g., they use the word “stuff” frequently
- Their citations, e.g., citing themselves (I always love a good “Source: Me!”) and citing “Google Images”
These things, in my view, are neither good or bad: I’m more interested in the study of the rhetoric which I find fascinating for investment banker documents/presentations like this.
Not only that, it’s a classic “Word doc accidentally printed in landscape.” The investment community can’t help themselves.
As another note, no need to be such a parenthetical dick, below, to prove the point of a poor M&A history, just let the outcomes speak for themselves, not the people who do them.
They actually do a better job in the very next slide, but that kind to pettiness doesn’t really help their argument. (Their argument is: she’s acquiring her friends.)
This is a type of reverse halo effect: we assume that tree standing goofiness has something to do with the business: an ad hominem attack. But, I think most billionaires probably have picture of themselves in trees, wearing those silly glove shoes, roasting their own coffee, only eating meat they kill themselves, or any number of other affectations that have nothing to do with profit-making, good or bad.
Generally speaking, there are only a few ways to make money on the Internet. There are e-commerce companies and marketplaces – think Amazon, eBay and Uber – that profit from transactions occurring on their platforms. Hardware companies, like Apple or Fitbit, profit from gadgets. For everyone else, though, it more or less comes down to advertising. Social-media companies, like Facebook or Twitter, may make cool products that connect their users, but they earn revenue by selling ads against the content those users create. Innovative media companies, like Vox or Hulu, make money in much the same way, except that they’re selling ads against content created by professionals. Google, which has basically devoured the search business, still makes a vast majority of its fortune by selling ads against our queries.
I don’t think Yahoo! really ha[s|d] a walled garden, which is probably a large reason why they bought tumblr. Google saturated the market with their commons space and now there’s little “open web” left to make profit off of, making everyone else rush to a walled garden approach: Facebook/Instagram, Foursquare, Apple, etc.
It’s “You’ve got mail!” all over again.
It’s all true, and yet it seems like a good idea still.