Credit: Shutterstock photoYahoo ( YHOO ) has a great buyer with Verizon and the outlined terms of the deal appear to position Verizon ( VZ ) and Yahoo for future success. But Verizon's weak second quarter and Yahoo's struggling business make the combination only likely to give a small boost to Verizon's financials.
In Verizon's second quarter earnings , the company missed revenue estimates but beat on the bottom line. Revenue for the quarter was $30.52 billion, down 5.2% from the year-ago quarter. EPS for the quarter was 94 cents, down 10% from the comparable quarter. Sales were down in the company's two main business segments, wireless and wireline.
Wireless and wireline
Wireless revenue was down 4% with a 4% increase in operating income. Wireless will be the company's main focus for integration of the Yahoo business. Already a current component of wireless is AOL , which Verizon acquired a year ago.
Verizon's results for wireline were even weaker than wireless in the second quarter. Wireline revenue was down 2%. Operating income for the quarter was down $264 million from the comparable quarter at losses of $463 million. The negative results were primarily due to the employee strike, which slowed growth in wireline during the second quarter.
Yahoo acquisition
On July 25, Verizon reported that it would be acquiring Yahoo for $4.83 billion. Verizon will be buying the majority of the Yahoo business, which Yahoo calls its core operating business. With a purchase price of $4.83 billion, the transaction values Yahoo stock at $5.09 based on Yahoo's entire number of shares outstanding. The deal excludes Yahoo's investments in Alibaba Group Holdings, Yahoo Japan, Yahoo's convertible notes, minority investments and Yahoo's non-core patents.
Investors can watch for these assets to be bundled under a new investment company which will be publicly traded and may potentially have some conversion value from previous Yahoo shares. The terms of the deal for Verizon also exclude Yahoo's cash, which it will primarily use to repay its shareholders. At the end of the second quarter, Yahoo had $1.325 billion in cash and cash equivalents. No other share conversions appear to be included in the terms of the deal from Verizon except a provision for restricted stock units. Verizon will match the restricted stock units of Yahoo's stock for Yahoo employees.
Given that the merger does proceed, Yahoo's purchased businesses will be integrated with Verizon's digital wireless business under the direction of Marni Walden, executive vice president and president of the Product Innovation and New Businesses organization at Verizon. The businesses Verizon will be integrating include:
- Yahoo's premium content brands in major categories including finance, news and sports.
- Yahoo's digital wireless email services globally.
- Brightroll, a programmatic demand-side technological advertising platform.
- Flurry, an independent mobile apps analytics service.
- Gemini, a native and search advertising solution.
With these businesses, Yahoo brings approximately $1.3 billion in quarterly revenue and $83.5 million in earnings. Its digital wireless business will account for approximately 6% of Verizon's wireless revenue and 1% of Verizon's wireless earnings.
These businesses
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
