Morningstar

Verizon Bags Yahoo, But We Question the Strategic Rationale

The $4.8 billion deal won’t move the needle on valuation, but we’re skeptical that Verizon will be able to reinvigorate Yahoo.

Securities In This Article
Verizon Communications Inc
(VZ)

Further, Yahoo has also struggled to create a meaningful video content business, failing with original productions, such as the television series Community and its foray into NFL broadcasts last year. As such, we doubt Yahoo will contribute much to any improvement in Verizon’s Go90 offering. We remain skeptical of Verizon’s video efforts, as other competitors in the video market enjoy far greater insight into viewing habits or enjoy the benefits of an open platform, such as Facebook and YouTube.

Verizon does receive additional ad technology to augment AOL, including the Brightroll programmatic platform. Though we’d prefer that Verizon stick to its knitting in the telecom business, where it possesses clear competitive advantages, we believe the firm has some chance of success in building an ad platforms on top of its networks that bring unique capabilities to the market. Here again, however, we fear that an emphasis on owned content, coupled with Verizon’s network position, creates the potential for perceived favoritism that could hinder the firm’s ability to attract advertisers and content owners to its platform.

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About the Author

Michael Hodel, CFA

Sector Director
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Michael Hodel, CFA, is a sector director, AM Communication Services, for Morningstar*. He covers U.S. telecom service providers and related firms, including AT&T, Verizon, and Comcast. His team covers media companies, global telecom service providers, and owners of telecom infrastructure, such as wireless towers and data centers. The team’s research focuses on the role that evolving networking technologies, consumer habits, and industry structures play in shaping the competitive advantages and disadvantages facing firms under coverage.

Hodel joined Morningstar in 1998, initially serving within the equity data group, responsible for collecting financial information on thousands of firms. Prior to his current position, he spent two years as a portfolio manager for Morningstar Investment Management, LLC. Previously, he served as a technology strategist responsible for telecom research, chair of Morningstar’s Economic Moat Committee, and a senior member of Morningstar’s corporate credit ratings initiative.

Hodel holds a bachelor’s degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign. He also holds a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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