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Yahoo Finds a Suitor, to Sell Assets to Verizon for $4.8B
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We find an echo of the proverbial adage “shape up or ship out” with some media reports indicating that Internet portal giant Yahoo! Inc. has finally decided to sell its core assets to Verizon Communications Inc. (VZ - Free Report) for a little over $4.8 billion after trying to survive as a standalone company amid stiff competition. Verizon is slated to make the official announcement regarding the deal on Monday before the market opens.
As per the terms of the deal, Verizon will acquire Yahoo’s real estate assets along with some intellectual properties that are to be sold separately. Yahoo will retain its stake in Alibaba Group Holding Limited (BABA - Free Report) and Yahoo Japan Corp. amounting to a combined market value of approximately $40 billion.
Founded in 1994 by two Stanford graduate students Jerry Yang and David Filo, Yahoo started off as a simple hand-selected directory to the World Wide Web that was still in its infancy. With the emergence of Google on the scene a few years later, with its automated and technologically superior approach of indexing the web, Yahoo decided to give Google’s search engine a try and made it the default search engine for its website. Later on Yahoo tried acquiring Google, failing which it decided to build its own search tool.
Gradually social networking platforms such as Orkut and Facebook took center stage and Yahoo was left struggling as a web portal by the mid-2000s. By this time, Google had also cemented its position as a dominant Internet search engine and its search ads business proved to be a lucrative undertaking.
After several new CEOs and attempts to turn around the business, Yahoo hired Marissa Mayer, a former Google search executive, as the CEO of the company in Jul 2012. Though Yahoo acquired more than 20 companies in Mayer’s tenure, it struggled to keep up with its competitors who had been at the game longer.
Notably, in 2005, Yahoo scooped up a 40% stake in Alibaba for $1 billion in cash and agreed to transfer the company’s Chinese Internet assets to Alibaba. When Alibaba went public in 2014, Yahoo sold much of that stake, retaining only 15% of the company, which was worth about $31 billion.
While Mayer’s plan to spin off a separate company out of the Alibaba stake was abandoned mid-way when ongoing changes in IRS tax policies made a tax-free separation uncertain, Yahoo’s languishing revenues and profits became a major concern for investors. Jeffrey C. Smith, the chief of the hedge fund Starboard Value began agitating and called for the sale of Yahoo’s core business so as to mitigate the Alibaba tax issues. Yahoo’s board started accepting bids for the business in Feb 2016.
What’s Next?
Verizon will likely keep Yahoo’s business mostly intact to compete with Facebook and Google in the digital ads space and leverage the user base on Yahoo Finance. The acquisition will help Verizon to become the third major player in the $187 billion digital advertising space well behind market leaders Google and Facebook.
Zacks Rank
At present, Yahoo has a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology space is MeetMe, Inc. sporting a Zacks Rank #1 (Strong Buy).
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Yahoo Finds a Suitor, to Sell Assets to Verizon for $4.8B
We find an echo of the proverbial adage “shape up or ship out” with some media reports indicating that Internet portal giant Yahoo! Inc. has finally decided to sell its core assets to Verizon Communications Inc. (VZ - Free Report) for a little over $4.8 billion after trying to survive as a standalone company amid stiff competition. Verizon is slated to make the official announcement regarding the deal on Monday before the market opens.
As per the terms of the deal, Verizon will acquire Yahoo’s real estate assets along with some intellectual properties that are to be sold separately. Yahoo will retain its stake in Alibaba Group Holding Limited (BABA - Free Report) and Yahoo Japan Corp. amounting to a combined market value of approximately $40 billion.
YAHOO! INC Price
YAHOO! INC Price | YAHOO! INC Quote
Why This Move?
Founded in 1994 by two Stanford graduate students Jerry Yang and David Filo, Yahoo started off as a simple hand-selected directory to the World Wide Web that was still in its infancy. With the emergence of Google on the scene a few years later, with its automated and technologically superior approach of indexing the web, Yahoo decided to give Google’s search engine a try and made it the default search engine for its website. Later on Yahoo tried acquiring Google, failing which it decided to build its own search tool.
Gradually social networking platforms such as Orkut and Facebook took center stage and Yahoo was left struggling as a web portal by the mid-2000s. By this time, Google had also cemented its position as a dominant Internet search engine and its search ads business proved to be a lucrative undertaking.
After several new CEOs and attempts to turn around the business, Yahoo hired Marissa Mayer, a former Google search executive, as the CEO of the company in Jul 2012. Though Yahoo acquired more than 20 companies in Mayer’s tenure, it struggled to keep up with its competitors who had been at the game longer.
Notably, in 2005, Yahoo scooped up a 40% stake in Alibaba for $1 billion in cash and agreed to transfer the company’s Chinese Internet assets to Alibaba. When Alibaba went public in 2014, Yahoo sold much of that stake, retaining only 15% of the company, which was worth about $31 billion.
While Mayer’s plan to spin off a separate company out of the Alibaba stake was abandoned mid-way when ongoing changes in IRS tax policies made a tax-free separation uncertain, Yahoo’s languishing revenues and profits became a major concern for investors. Jeffrey C. Smith, the chief of the hedge fund Starboard Value began agitating and called for the sale of Yahoo’s core business so as to mitigate the Alibaba tax issues. Yahoo’s board started accepting bids for the business in Feb 2016.
What’s Next?
Verizon will likely keep Yahoo’s business mostly intact to compete with Facebook and Google in the digital ads space and leverage the user base on Yahoo Finance. The acquisition will help Verizon to become the third major player in the $187 billion digital advertising space well behind market leaders Google and Facebook.
Zacks Rank
At present, Yahoo has a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology space is MeetMe, Inc. sporting a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>