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Verizon Rethinking About Buying Yahoo

Posted on Friday, Oct 21st 2016

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Last quarter, Verizon confirmed plans of buying out Yahoo’s (Nasdaq: YHOO) core assets for $4.8 billion. Verizon hopes to build an advertising platform akin to Google and Facebook through the integration of its earlier acquired AOL business with Yahoo. But the recently reported massive email hack on Yahoo is causing Verizon some angst. The only thing that is probably keeping it in the game is the improving profits that Yahoo reported during the quarter.

Yahoo’s Financials

Yahoo’s revenues grew to $1.305 billion, in line with the market’s forecast. EPS of $0.20 was significantly ahead of the Street’s forecast of $0.14 for the quarter.

By segment, Yahoo’s net search advertising revenues grew 36% to $703 million and net display advertising revenue fell 7% to $476 million. Other revenues fell 37% to $198 million.

Among other metrics, paid clicks fell 22% over the year. Within display advertising, number of ads sold fell 5% while average price per ad improved 1% over the year. MAVEN (mobile, video, native and social) revenues grew 24% over the year to $524 million, with mobile revenues growing 46% to $396 million.

Given the pending sale to Verizon, Yahoo did not hold an investor call to discuss the quarterly results.

Yahoo’s Service Expansion

During the quarter, Yahoo continued to invest in mobile and content related initiatives. Within mobile, it released an upgrade focused on sports fans that provides them with the ability to search and stream Major League Baseball games directly from within the Yahoo Sports app. It also updated the Yahoo Fantasy app for iOS that will simplify navigation for the users. It also upgraded its messenger app for both the desktop and mobile users. The upgraded app allows users to send and unsend messages, photos, gifs, and video messages in one-on-one and group conversations.

Last month, Yahoo introduced Yahoo View, a new community TV-watching experience focused on the cord-cutters. Yahoo View has been developed in partnership with Hulu and is targeted at bringing Hulu’s free library of movies, clips, and TV programs to the web. Hulu is shutting down its free, ad-supported offering on its website and if users still wish to view content for free, then they will have to visit Yahoo View. The app has currently been released on desktops and iPhones, and it provides users with access to Hulu’s free content.

Additionally, Yahoo also launched a news driven service called Newsroom for iOS and Android that allows users to discover relevant content and participate in conversations. It is also increasing its live stream coverage and has already streamed the 2016 First Presidential Debate, NBA Free Agency Show, MLB Game of the Day, and the 2016 Concordia Summit with Warren Buffett.

Yahoo’s Breach

Recently Yahoo announced that there was a significant data breach in its mail service that affected nearly 500 million email users back in 2014. According to market reports, this was the largest data breach in the recent past followed by the MySpace breach of 360 million users in May this year. But despite the magnitude, Yahoo believes that the breach was State sponsored and involved loss of details such as account information, names, email addresses, telephone numbers, dates of birth, hashed passwords and, in some cases, encrypted or unencrypted security questions and answers. While authorities look into the breach, Yahoo claims that since the announcement of the hack, its current service has not been impacted much. Its reports reveal that there isn’t any significant change in Yahoo’s user behavior.

The news has, however, caused Verizon to revisit its agreement. Last week, Verizon’s legal counsel suggested that the hack represented material impact and would need re-evaluation by Verizon. Unfortunately for Verizon, though, proving material impact is not necessarily easy in a Court given the frequency of cyber attacks in an Internet-based company. One will have to wait for the legal drama to unfold to see what Verizon ultimately decides.

Meanwhile, Yahoo’s stock is trading at $42.73 with a market capitalization of $40.67 billion. It had fallen to a low of $26.15 in February this year. The stock has fallen marginally from $44.92 it was trading at a month ago.

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Photo Credit: Esther Vargas /Flickr.com

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