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Why Verizon is buying Yahoo for $4.8 billion, in a deal Marissa Mayer calls “poetic”

AP Photo/Marcio Jose Sanchez
Bracing for new ownership.
By Steve Mollman
Published Last updated This article is more than 2 years old.

Verizon Communications has announced it is buying Yahoo’s core businesses for $4.83 billion—a steep price to pay for internet assets that are considered “worthless” by Wall Street.

The deal makes sense for Verizon, though.

As one of the largest US telecom carriers, Verizon faces market saturation and limited growth prospects in its traditional business. Its purchase of Yahoo, which follows its acquisition of AOL in May 2015, provides more evidence that it sees online content and advertising as a primary way to increase growth.

Under the deal, Verizon will get Yahoo’s online assets including search, mail, and instant messaging, along with its ad technology and various real estate holdings. The sale does not include Yahoo’s cash, nor its stakes in Alibaba Group Holdings and Yahoo Japan. These and a handful of other assets will stay with Yahoo, which plans to change its name when the Verizon transaction closes and will remain a publicly traded company.

For Verizon, the acquisition of Yahoo’s core internet assets puts the telecom giant “in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising,” Verizon chairman and CEO Lowell McAdam said in a press release announcing the transaction.

In the online advertising business, Verizon faces two main competitors: Google and Facebook. By meshing together various tools from AOL, Yahoo, and its own operations, Verizon might be able to mount a credible challenge to those two giants. Verizon already has AOL’s advertising technology—and Yahoo’s has been criticized—but Yahoo’s prowess in native advertising could prove useful, especially in the mobile space. Yahoo also could help Verizon improve in the search arena, where it lags.

Meanwhile, Yahoo will bring in hundreds of millions more viewers from sites like News, Sports, and Finance to complement Verizon’s popular properties like TechCrunch and Huffington Post. In the US, comScore puts Yahoo at No. 3 among digital properties.

“Yahoo and AOL popularized the Internet, email, search and real-time media,” Yahoo CEO Marissa Mayer said in the joint announcement of the deal. “It’s poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile.”

Of course, even with the AOL and Yahoo assets, Verizon has a long way to go (paywall) to catch up with the online advertising leaders. Verizon with AOL currently holds a mere 1.8% of the $69 billion digital ad market in the US. Yahoo has about 3.4%. Google and Facebook together claim about half of it. Looked at another way, though, there’s plenty of market share to steal, which can’t be said of its traditional business.

This story was updated at 8:13am ET with information from Verizon and Yahoo’s official statement announcing the deal.

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