Verizon gives up on dreams for fading AOL, Yahoo
NEW YORK Verizon Communications Inc. is conceding defeat on its crusade to turn a patchwork of dot-com-era businesses into a thriving online operation.
The wireless carrier slashed the value of its AOL and Yahoo acquisitions by US$4.6 billion, an acknowledgment that tough competition for digital advertising is leading to shortfalls in revenue and profit.
The move will erase almost half the value of the division it had been calling Oath, which houses AOL, Yahoo and other businesses like the Huffington Post.
“The hype of Oath has been over for some time,” Wells Fargo analyst Jennifer Fritzsche said in a note Tuesday. She likened the writedown to “ripping off the Oath band-aid.”
The episode offered a silver lining for investors. Rather than attempt a megadeal like AT&T Inc.’s US$85billion acquisition of Time Warner Inc., Verizon only spent about US$9.5 billion in the past three years buying fading web giants. Though the bet hasn’t paid off, it at least stumbled on a smaller scale.
The revision of the Oath division’s accounting leaves its goodwill balance — a measure of the intangible value of an acquisition — at about US$200 million, Verizon said in a filing Tuesday. The unit still has about US$5 billion of assets remaining.
Oath was the vision of former Verizon executive Tim Armstrong, who had pursued a turnaround at AOL before the telecommunications giant acquired the business. But Armstrong stepped down from his position as CEO of Oath in October, shortly after Hans Vestberg became chief executive of Verizon.
The carrier is making other cuts. Verizon announced this week that 10,400 employees, or about 6.8 per cent of its staff, had accepted voluntary buyouts as part of a belttightening campaign.
That will result in a charge of as much as US$2.1 billion, which will be offset by a US$2.1-billion tax benefit in the fourth quarter, the company said Tuesday.
Verizon investors seem relieved to put the writedown behind them. The shares rose 1.6 per cent to US$59.20 on Tuesday, bringing them to a nearly 12 per cent gain for the year. That compares with a 22-per-cent decline for AT&T, its chief rival in wireless service.
The company signalled last month that it was shifting away from using the Oath brand, which has been heckled on social media. The division was renamed Verizon Media Group/Oath under a new structure.
While the idea of building a new media venture from a pile of online scraps might have held some allure, it was never going to transform the telecom giant, said Walt Piecyk, an analyst with BTIG LLC.
“Even if Verizon’s move into media was wildly successful, it was hard to see how it could move the needle at a company dominated by wireless,” Piecyk said.