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Verizon Communications (VZ) to Launch Oath Post Yahoo Buyout

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On Jun 13, 2017, U.S. telecom behemoth, Verizon Communications Inc. (VZ - Free Report) completed its long-awaited deal to acquire the core businesses of the Internet-company, Yahoo! Inc., for $4.48 billion. The deal will create a major player in the mobile media and advertising space.

This is, however, a revised $350 million discounted deal which came after Yahoo’s two major data breaches, after the original $4.83 billion deal announced in July 2016. Under the terms of the deal, Verizon will take control of Yahoo's core assets including its search products, digital content brands, advertising and analytics assets. The core businesses of Yahoo perfectly complement Verizon’s focus areas of digital platform.

The closure of this deal paves the way for a new beginning. Oath will be part of Verizon’s Media and Telematics organization and will be overseeing a diverse house of more than 50 media and technology brands under Yahoo and AOL, engaging more than a billion people globally. AOL Inc. is a major player in the digital content and online advertising space, acquired by Verizon in Jun 2015.

The Oath portfolio includes HuffPost, Yahoo Sports, AOL.com, MAKERS, Tumblr, BUILD Studios, Yahoo Finance, Yahoo Mail and more, with an aim to build consumer-friendly brands.

Oath will reportedly sack nearly 2,100 employees,as Verizon will trim expenses and eliminate overlapping back office positions. The dismissal accounts for 15% of the combined companies’ 14,000 employees. This reported lay off is not unnatural, given that both companies have a lot of redundancies including human resources, finance, marketing and general administration.

The Expected Synergies

The completion of the Yahoo deal marks a strategic move by Verizon to strengthen its digital media segments, globally. The combined set of assets across Verizon and Oath, from 5G to Internet of Things (IoT) and from content partnerships to originals, will create innovative products to lure customers from across the world.

Oath’s brands are quite popular in the U.S., credit goes to Yahoo and AOL’s portal businesses that provided many consumers with their first access to internet services such as email. Oath’s global growth plan will be centered on key markets to extend its audience outside the U.S., including western Europe, Japan, Taiwan and Singapore.

Tim Armstrong, former Chief Executive Officer (CEO) of AOL, will now become the CEO of Oath. Verizon pre-estimates to have 1.3 billion users and $7 billion--$10 billion of revenue growth, by 2020, from the combined AOL and Yahoo. The CEO has chalked out plans to increase Oath's combined user base from 1.3 billion consumers to 2 billion and achieve revenue growth in the range of $10 billion to $20 billion by 2020. He aims to opt for some buyouts to achieve the required targets.

We expect Tim Armstrong to stand up to expectations, taking a closer look at his record of achievements and leadership in the same zone. Oath has started operating as a global digital and mobile company from Jun 13, 2017 onwards.

With AOL and Yahoo, Verizon aims to compete against the dominant players in the online and digital video advertising market, which includes Facebook Inc. (FB - Free Report) and Alphabet Inc. (GOOGL - Free Report) . Tim Armstrong is also gearing up to come up with the industry’s most advanced and open advertising technology solutions.

We believe, a slowdown in mobile phone sales might have prompted Verizon to diversify its business model into the digital media platform, targeting the lucrative segments of digital media, advertising and content creation, as well as distribution. On a similar note, Verizon’s rival, U.S. telecom behemoth AT&T Inc. (T - Free Report) has agreed to acquire media giant, Time Warner in an $85.4 billion cash-and-stock deal. If the proposed merger goes through, the combined entity will become a major player in the consolidated telecom-media space.

Notably, the U.S. pay-TV industry has been currently witnessing massive consolidation, aiming to remain more competitive, while widening and retaining its position in the industry.

Price Performance and Zacks Rank

Over the past three months, share price of Verizon have inched up 2.36% compared with the Zacks categorized Wireless National industry’s gain of 1.20%.

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

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