Verizon signals its Yahoo and AOL divisions are almost worthless

The on-paper assessment represents a realization that Verizon's online ad strategy, called Oath, is a bust.
Image: Oath
Nicholas Kamm / AFP/Getty Images file

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.
SUBSCRIBE
By Alex Johnson

Only a year and a half after it built Oath from the assets of the communications giants Yahoo and AOL, Verizon now says they're virtually worthless.

In a filing Tuesday with the Securities and Exchange Commission, or SEC, Verizon Communications Inc. said it was taking a $4.6 billion charge on the goodwill balance of Oath, the division it created in June 2017 after it spent billions of dollars to buy Yahoo Inc. and AOL Inc.

"Goodwill" is calculated by subtracting the current fair market value of the assets and liabilities of an acquired company from the price that was paid to buy the company.

Verizon said in the filing Tuesday that it last assessed the Oath brand's goodwill at $4.8 billion. Writing off $4.6 billion of that means Verizon now values Oath — including AOL and Yahoo subsidiaries like Yahoo.com, AOL.com, the Huffington Post, MSN and TechCrunch — at just $200 million on paper.

That doesn't mean Oath is actually worth only $200 million in cash — Oath said it still has about $5 billion of real assets remaining. On the other hand, Verizon calculated that, after taxes, the write-down would knock $4.5 billion in real money off the company's income in the fourth quarter, which ends Dec. 31.

Oath was supposed to be Verizon's big push into web-driven advertising, a bid to compete with behemoths like Google LLC and Facebook Inc. in the U.S. online ad market, which the Interactive Advertising Bureau projects could top $100 billion this year.

But rather than eat into Google's and Facebook's market shares, Oath's ad revenue fell by 7 percent in the third quarter, which ended Sept. 30, to just $1.8 billion.

Byers Market Newsletter

Get breaking news and insider analysis on the rapidly changing world of media and technology right to your inbox.

Google's parent company, Alphabet Inc., by comparison, hoovered up $29 billion in ad revenue in the same three months, a rise of more than 10 percent over the previous quarter.

Together, Google and Facebook control about 58 percent of the U.S. digital ad market. The market research company eMarketer projects that Oath will account for just 3.3 percent of that market in 2018, down from 4.1 percent last year.

"These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business," Verizon said.

Meanwhile, the growth of another player, Amazon Advertising — which outpaced Oath with $2.5 billion in ad sales in the third quarter — has pushed Oath even lower down the food chain.

eMarketer.com

"The hype of Oath has been over for some time," Jennifer Fritzsche, managing director of equity research for Wells Fargo Securities, said Tuesday in a report to clients obtained by Barron's and other business publications.

Writing off 96 percent of its value is like "ripping off the Oath band-aid," Fritzsche wrote.

The reversal came swiftly. As recently as June, Verizon shut down its online video platform, called Go90, so it could focus on making Oath the third big ad player, a goal it set only a little more than a year ago.

"We don't want to stop at number three," John DeVine, Oath's chief revenue officer, told CNBC at the time. DeVine left Oath in June to join Facebook.

Verizon bought AOL for $4.4 billion in 2015, and it bought Yahoo for $4.5 billion in 2017. It then merged them into a new venture called Oath and appointed Tim Armstrong, AOL's chief executive at the time, to run the combined division.

Armstrong left the company in October after The Wall Street Journal reported that Oath's leaders were complaining that Verizon wasn't sharing all of its wireless subscriber data, which could have been used to target Oath's ads more precisely.

Armstrong's successor, K. Guru Gowrappan, the former global managing director of Alibaba Group, oversaw a five-year strategic planning review of Oath's business prospects "resulting in unfavorable adjustments to Oath's financial projections," according to Tuesday's SEC filing.

Verizon gave no indication of its plans for AOL, Yahoo, TechCrunch, the Huffington Post and the dozen or so other businesses collected under the Oath umbrella, which also include Engadget, Tumblr, Rivals Sports, the Makers video platform and several portals in partnership with Microsoft Corp.: MSN, Outlook and Xbox.

There was more in the news-filled three-paragraph filing: Verizon said it would also cut 10,400 jobs through voluntary buyouts — a 6.8 percent reduction in its workforce that will cost the company as much as $2.1 billion in severance charges.

"This program coincides with Verizon's recently announced realigned organization structure designed to optimize growth opportunities in the 5G era," Chief Executive Hans Vestberg said in a statement.

"These changes are well-planned and anticipated, and they will be seamless to our customers. This is a moment in time, given our financial and operational strength, to begin to better serve customers with more agility, speed and flexibility."

Investors appeared to approve of the maneuvers. Verizon stock was up by 1 percent in after-hours trading on Tuesday night.