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Is Yahoo's Verizon Deal in Danger Post Data Breach Case?
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After Yahoo! Inc. disclosed another case of data breach on Dec 14, experts now believe that its recent acquisition deal with Verizon Communications Inc. (VZ - Free Report) for $4.83 billion may be in jeopardy. This was Yahoo’s second revelation of a hacking scandal that might have affected 1 billion of its customers. This September, Yahoo had reported data breach of 500 million users during 2014. Notably, there were speculations of a billion dollar discount in the purchase agreement between the parties in the wake of the disclosure.
Apart from hacking accounts, several media reports revealed that Yahoo had been spying on customers on behalf of U.S. intelligence agencies. Also, the company’s failure to notify stakeholders in a timely manner was massively criticized.
Yahoo has a large user base with around one billion active monthly users, including 600 million mobile users. Yahoo Mail also boasts around 280 million users, making it the busiest segment of the site. Verizon’s purchase of Yahoo was mainly aimed at monetizing this user base through mobile advertising and challenging Alphabet Inc. (GOOG - Free Report) and Facebook Inc. dominance in this space. Meanwhile, Yahoo has shown impressive growth in the area of mobile advertising and expects to generate revenues to the tune of $1.33 billion this year.
Yahoo’s Response to Hacks
After disclosing the security breach, Yahoo has requested its users to reset passwords in their accounts. This might affect user experience which in turn can lead to a drop in its customer base. If Yahoo’s user base is affected by the aforementioned scandals and Yahoo’s measures, Verizon will also face the brunt in the future. This is because Yahoo’s valuation of the deal is largely based on the user information Verizon will gather going ahead.
The Bottom Line
The purchase of Yahoo’s core assets are in line with Verizon’s long-term view to gain traction in the lucrative mobile advertising segment. However, given the persistent erosion of Yahoo’s brand value, Verizon can now consider the data breach to be a “material adverse event.” which will allow it to change the terms of the $4.83 billion transaction. The company can not only seek renegotiation of purchase price but also has the option to opt out of the deal.
Price Performance of Verizon
After the revelation of Yahoo’s first data breach, Verizon’s stock price plunged 12% over the next 20 trading days. However, backed by strong fundamentals, the stock price made a comeback soon. Meanwhile, the revelation of another data breach might hit the stock again. Verizon currently carries 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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Is Yahoo's Verizon Deal in Danger Post Data Breach Case?
After Yahoo! Inc. disclosed another case of data breach on Dec 14, experts now believe that its recent acquisition deal with Verizon Communications Inc. (VZ - Free Report) for $4.83 billion may be in jeopardy. This was Yahoo’s second revelation of a hacking scandal that might have affected 1 billion of its customers. This September, Yahoo had reported data breach of 500 million users during 2014. Notably, there were speculations of a billion dollar discount in the purchase agreement between the parties in the wake of the disclosure.
Apart from hacking accounts, several media reports revealed that Yahoo had been spying on customers on behalf of U.S. intelligence agencies. Also, the company’s failure to notify stakeholders in a timely manner was massively criticized.
Yahoo has a large user base with around one billion active monthly users, including 600 million mobile users. Yahoo Mail also boasts around 280 million users, making it the busiest segment of the site. Verizon’s purchase of Yahoo was mainly aimed at monetizing this user base through mobile advertising and challenging Alphabet Inc. (GOOG - Free Report) and Facebook Inc. dominance in this space. Meanwhile, Yahoo has shown impressive growth in the area of mobile advertising and expects to generate revenues to the tune of $1.33 billion this year.
Yahoo’s Response to Hacks
After disclosing the security breach, Yahoo has requested its users to reset passwords in their accounts. This might affect user experience which in turn can lead to a drop in its customer base. If Yahoo’s user base is affected by the aforementioned scandals and Yahoo’s measures, Verizon will also face the brunt in the future. This is because Yahoo’s valuation of the deal is largely based on the user information Verizon will gather going ahead.
The Bottom Line
The purchase of Yahoo’s core assets are in line with Verizon’s long-term view to gain traction in the lucrative mobile advertising segment. However, given the persistent erosion of Yahoo’s brand value, Verizon can now consider the data breach to be a “material adverse event.” which will allow it to change the terms of the $4.83 billion transaction. The company can not only seek renegotiation of purchase price but also has the option to opt out of the deal.
Price Performance of Verizon
After the revelation of Yahoo’s first data breach, Verizon’s stock price plunged 12% over the next 20 trading days. However, backed by strong fundamentals, the stock price made a comeback soon. Meanwhile, the revelation of another data breach might hit the stock again. Verizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>