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Will Verizon (VZ) Bind AOL & Yahoo Assets by an 'Oath'?

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U.S. telecom behemoth Verizon Communications Inc. (VZ - Free Report) is planning to unite AOL Inc. with Yahoo Inc.’s core internet assets under one umbrella – Oath. This was recently reported by Bloomberg.

Oath is expected to be Verizon’s new company overseeing Yahoo and AOL, including more than 20 brands. The company is reluctant to provide any further details on Oath before summer. Reports, however, state that Verizon is pre-estimated to have 1.3 billion users and $7 billion in sales from the combined AOL and Yahoo.

AOL Inc. – a major player in the digital content and online advertising space – was acquired by Verizon in Jun 2015. The Verizon-Yahoo deal for $4.83 billion is expected to be completed by the end of the current quarter of this year (by Jun 30). Following the two major irreversible data breaches in the latter half of 2016, this deal underwent a discount revision of $350 million. Under the terms of the deal, Verizon will take control of Yahoo's core assets including its search products, digital content brands, and advertising and analytics assets. The core businesses of Yahoo perfectly complement Verizon’s core areas of digital platform.

Bottom Line

For quite some time, Verizon is geared up to acquire some major companies in the digital media space. Notably, the company is systematically diversifying its business model into the digital media platform, targeting the lucrative segments of digital media, advertising and content creation as well as distribution.

Last September, Verizon teamed up with private media group Hearst Corp. on a number of digital ventures. The company’s also launched a segment – ComplexNetworks.com – in a bid to strengthen its digital-video networks. With this service, Verizon is set to pose a formidable challenge to giants like Alphabet Inc. (GOOGL - Free Report) and Facebook Inc. in the mobile video advertising space.

Meanwhile, Verizon Communications is likely to start an online TV streaming service this summer, according to a recent Bloomberg report. The company has decided to come up with dozens of channels nationwide for the new service. Management is currently negotiating with several TV network owners to secure online streaming rights.

We believe that the combination of Yahoo and AOL should help Verizon sell more digital advertisements and create a major player in the mobile media and advertising space.  

Price Performance

Despite such profitable and booming business prospects, the price performance of Verizon is depressing. Over the past three months, the stock lost 10.01% compared with the Zacks categorized Wireless National industry’s decline of 4.67%.

We believe continued operation in the saturated and competitive wireless market, expenses related to promotions and discounts, an intensely competitive video market and persistent losses in access lines (in its wireline segment) might have caused the company’s below-par performance.

Verizon currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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