American playwright Edward Albee once wrote that: “Sometimes it’s necessary to go a long distance out of the way in order to come back a short distance correctly.”
And so it is with Verizon and its expensive and unsuccessful foray into digital media. The US telecommunications giant is selling Yahoo, AOL and other media assets to private equity house Apollo for $5bn. The deal will not enrich Verizon shareholders. The division, once known as Oath, was assembled from the acquisition of AOL and Yahoo for more than $9bn between 2015 and 2017.
Verizon already wrote down the value of the media business by $4.6bn in 2018. It sold blogging site Tumblr in 2019 and HuffPost to BuzzFeed late last year. The deal with Apollo will allow it to focus on its core phone and internet business. Proceeds from the sale will also give it more cash to fund its 5G network expansion. In the cut-throat world of US telecoms, building faster phone networks is seen as key to winning subscribers.
The cash will come in handy. Verizon has already sold more than $31bn in bonds this year to pay for its $45bn bid for 5G airwaves. It said last month that capital expenditure would come in at between $19.5bn to $21.5bn this year.
Still, shareholders can take comfort that Verizon is not AT&T. The latter bought satellite TV service provider DirecTV for almost $50bn in 2015. Earlier this year, it sold the business to private equity group TPG in a deal that valued the ailing business at $16.25bn.
Although Verizon’s media division proved to be no match against Google and Facebook’s online ad dominance, it still generates plenty of revenue particularly through its sports and finance sites which could be expanded now to take advantage of growth in sports betting and retail stock investing. Collectively, these media properties pulled in $7bn in revenue last year and $1.9bn in the first quarter of 2021. Yahoo remains one of the most visited websites in the US, with almost 3.8bn visits in March, according to SimilarWeb.
For Verizon, closing the door on digital media may be the easy part. Its challenge now is to make sure its 5G dreams do not turn into a nightmare. To do that, it will need to keep subscribers from defecting to rivals T-Mobile and AT&T, all while keeping its debt levels within a manageable range.
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