Verizon’s Digital Expansion A Tale Of Value Destruction

By Glenn Dyer | More Articles by Glenn Dyer

American telco, Verizon had dreams of competing with Google, Facebook, Apple and Amazon in the digital powerhouse zone, but failed to turn its two big purchases, AOL and Yahoo into growing businesses.

While that has been the situation now for nearly two years Verizon has been forced to accept defeat and cut $US4.8 billion from the value of Oath – which it created by merging AOL with Yahoo.

With the combined business is now worth just half the $US9.9 billion paid for AOL and Yahoo (Yahoo’s goodwill is now worth just $US200 million, there are said to be another $US5 billion of assets in Oath) – $US4.5 billion for AOL and $US4.4 billion for Yahoo). That means the likes of Yahoo, Huffington Post and Tumblr – key brands in Oath are close to being worthless.

In taking the write-down, Verizon said a filing with the US Securities and Exchange Commission:  “Oath . . . has experienced increased competitive and market pressures throughout 2018 that have resulted in lower than expected revenues and earnings. These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business.”

Seeing oath if the 16th largest company in America, it means not even the biggest groups are immune from the forces and disruption being generated by Facebook, Google, Amazon, Apple, and Netflix.

In Australia the writedown means the chances of Seven West Media getting anything but a pittance for its 50% stake in Oath’s local business in Yahoo7 are fading to black.

Seven has been trying to strike a deal with Oath to buy Seven West’s half share since March, but Oath has refused to pay the price Seven has wanted, even though amount has been cut. The parties have been to arbitration – a decision was expected around October.

“In March, Seven West Media announced its intention to sell its 50 percent stake in Yahoo7 to Oath. The transaction is expected to be completed by October 2018,“ Seven said in its annual report. The half interest in Yahoo 7 was valued at just over $46 million at June 30 (after a write-down of more than $154 million in 2016-17, and then a further impairment charge of more than $11 million in 2017-18. That produced a ‘fair value of just over $35 million. A note to the accounts in the 2017-18 annual report warned:

“A loss on sale could arise in the future if the third independent valuation of Yahoo7 is less than the fair value measurement of $35.5m as it will reduce the final selling price of the Company’s shareholding in Yahoo7.”

There has been no announcement by Seven of a sale and the massive write-down announced by Verizon means Seven will be lucky to get anything for its half interest. If Oath is all but worthless to Verizon, why would it buy Seven’s stake, except at a knockdown price to tidy up a failed investment in Australia.

Seven West Media shares ended at 58.5 cents, up 1.7%, but still negative for the year to date.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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