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Yahoo Faces New Challenge as Data Breach Reports Surface

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A data breach may have struck Yahoo Inc. . This reveals the bitter truth that the series of data breaches at major U.S. companies over the past three years has not seen its end.

The company, which is up for sale, has reportedly become the victim of a massive cyber-attack, wherein personal information of about half a billion of its users has been tampered with. According to several sources, Yahoo will confirm this massive breach of its service in the coming week.

The Back Story

Yahoo’s data breach story dates back to late 2014. Bob Lord, Yahoo’s Chief Information Security Officer, said on Thursday that information from at least 500 million of its user accounts was stolen from the company’s network.

The company stated that the stolen data included consumers’ names, addresses, telephone numbers, dates of birth and encrypted passwords. However, sensitive information like unprotected passwords, payment card data and bank account information were not compromised with.

The company has warned the victims to be careful and not to provide any personal information on opening its web page. The company has also contacted the affected members and asked them to change their passwords. However, we do not expect any such warnings to help in making up for customer losses. It goes without saying that the lack of a tight data security system has made important information vulnerable to hackers.

The breach is considered one of the largest cyber-intrusions in the technology space. Though sources did not provide any detail about the extent of the damage, there is the likelihood of government investigation and legal action related to the breach.

Impact on Verizon Deal?

The news comes at a time when Yahoo is in the process of selling its core internet business and real estate assets to Verizon Communications Inc. (VZ - Free Report) . The cash transaction, worth $4.83 billion, is nearing its completion.

Though it is not clear whether the breach disclosure will affect the sale, but it could be a matter of concern for both parties. The extent of damage could mean unprecedented worries for the new owner. On the other hand, Yahoo and its shareholders may be worried that the breach could lead to an adjustment in the price of the transaction.

Verizon said in a statement that it was made aware of the breach over the last two days and had limited information about the matter. The company added, “we will evaluate as the investigation continues through the lens of overall Verizon interests, including consumers, customers, shareholders and related communities.”

Following the news, shares of Yahoo were up 0.02% and shares of Verizon were up 0.93% within the trading session.

Other Cyber Attacks

There have been instances of cyber attacks on several big companies  including MYSpace, Linkedln, Twitter (TWR.BE) and Tumblr. Also, eBay (EBAY - Free Report) in 2014, became a victim, when unknown perpetrators infiltrated a database of 145 million users, gaining unauthorized access to its corporate network.

With cyber security becoming a matter of utmost importance, all companies should regard it as part of their safeguarding strategies and look for more stringent cyber security measures to plug the loopholes in the system.

A well-known internet security expert, Dan Kaminsky, said that the Yahoo breach, which follows a rising number of other large-scale data breaches, could make it a watershed event, prompting government and businesses to put more effort into bolstering defense. He added, “Five hundred of the Fortune 500 have been hacked." Kaminsky also said that “If anything has changed, it’s that these attacks are getting publicly disclosed."

Currently, Yahoo has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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