Verizon disclosed on Tuesday that Oath, the subsidiary company which it created to manage acquisitions like its $4.5 billion takeover of Yahoo in 2017 and its $4.4 billion purchase of AOL in 2015, is worth a whole hell of a lot less than it thought.
According to CNN, Verizon previously claimed that Oath’s brand value including a goodwill valuation (and not assets) was $4.8 billion. A goodwill valuation is a somewhat nebulous metric of intangible factors like how recognizable a brand is, the strength of its customer base, its reputation, and proprietary technology, and in practice is the difference between the value of a company’s tangible assets that can be split off and sold and its market value. (For example, the value of the Soylent Corporation depends in large part on whether people know what Soylent is made of.) Verizon’s Tuesday disclosure lowered that to $200 million, reducing Oath’s value by half when $5 billion in remaining assets are accounted for.
Oath was supposed to be a media company that would challenge tech titans Facebook and Google’s crushing duopoly over the advertising business, as well as growing advertising rivals like Amazon. But it just hasn’t been up to the task, with Fortune noting that Oath’s third quarter revenue had actually declined seven percent to $1.8 billion. It’s supposed to be on track for $10 billion by 2020.
“Verizon’s Media business, branded Oath, has experienced increased competitive and market pressures throughout 2018 that have resulted in lower than expected revenues and earnings,” Verizon wrote in a filing. “These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business.”
The company’s Oath unit—the result of a merger between Yahoo and AOL under the Verizon brand—has come under particular scrutiny as Verizon seeks to save $10 billion in cash by 2021. Newly appointed CEO Hans Vestberg has taken an aggressive review of business units and cost-saving measures.
Verizon announced Monday that 10,400 employees had accepted buyout offers and would leave the company by June 2019. That program will cost Verizon between $1.8 billion and $2.1 billion in severance charges during the fourth quarter of 2018, according to the filing.
According to the Wall Street Journal, sources recently said an attempt to merge AOL and Yahoo’s advertising platforms “took longer than anticipated and still isn’t complete,” while another attempt to create a video app aimed at millennials (Go90) crashed and burned. The growing dominance of mobile platforms, which Google and Facebook are already dominating, twisted the knife.
When Oath was formed in 2017, Ars Technica noted that Verizon’s plans for its advertising business relied heavily on snooping around its customers’ browsing histories:
Advertising is key to Verizon’s plans for Oath. Since Verizon is a home Internet provider and the largest wireless carrier in the US, its access to Internet subscribers’ browsing histories could help boost the Yahoo/AOL advertising business. The Republican-led Congress and President Donald Trump recently wiped out rules that would have made it harder for ISPs to use their customers’ browsing history to serve personalized advertising.
The Journal further noted that the multi-billion-dollar downgrade is likely to have consequences for both media brands owned by Oath including the Yahoo Finance and the Huffington Post, the latter of which considered implementing a paywall. It may also spell problems for Oath’s tech subsidiaries like Tumblr, which coincidentally just alienated users with a sweeping ban on adult content (using automated filters that can’t tell the difference between Garfield and pornography).
Verizon itself is now focusing on the rollout of wireless technology, specifically 5G, and its new CEO Hans Vestberg is tasking “Oath executives with identifying how news, sports and augmented and virtual reality content would benefit from the 5G wireless network the company is starting to build,” the Journal wrote.
As CNBC noted, it could be much worse: Rival A&T spent a staggering $175 billion including debt on DirecTV and Time Warner in recent years, with MoffettNathanson analyst Craig Moffett saying the $49 billion DirecTV deal has likely lost half its value. The more recent Time Warner deal was likely overpriced, Moffett added, as the company’s shares rose 40 percent when news of the acquisition first emerged in late 2016.