Since buying AOL and Yahoo for nearly $9 billion, Verizon has seen its media properties plummet in value, marking the apparent failure of the telecom giant to challenge Silicon Valley’s advertising dominance and highlighting the difficulty of competing in the shifting digital media landscape.
Verizon said Tuesday that it will write down the goodwill value of its media business by $4.6 billion, a massive drop the company attributes to stiff competition in the digital ad market and a failure to realize benefits from the combination of the two legacy companies.
When Verizon acquired Yahoo last year, the company unveiled Oath, a media and tech business where Yahoo and AOL would be housed, among other brands, to edge out Silicon Valley’s dominant position in online advertising. But according to a Securities and Exchange Commission filing, Verizon said the value of Oath’s goodwill — the intangible assets it purchased in the AOL and Yahoo acquisitions — has cratered. Verizon had valued Oath’s goodwill at $4.8 billion, the filing said, but after the write-down it sits at just $200 million.
Joanna O’Connell, an analyst at Forrester Research, said that Oath had the makings of a valuable advertising platform, at least in theory, but it failed to keep up with an increasingly competitive advertising market.
On paper, Oath possessed key ingredients for success: its own media assets, advertising technology and a huge base of users tied to crucial data, O’Connell said. What’s less certain is why those components never cohered into something more, she explained, perhaps owing to a lack of buy-in from leadership, organizational weakness, or the awkward marriage of AOL and Yahoo underneath Verizon.
“The thing that is clear is they seemed to have failed,” she said.
The remarkable loss of value in Verizon’s marquee brands also underscores the obstacles of gaining ground in online advertising. Google and Facebook, the two leading players, claim about 58 percent of digital ad market share in the United States, according to the research firm eMarketer. But further down the rankings, ad companies are being outmaneuvered by another tech giant, Amazon.com. The e-commerce company will double its digital ad revenue this year, according to eMarketer projections, overtaking Oath and earning the number three position behind Google and Facebook, at 4.1 percent of market share. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.)
And even as the total digital ad market is projected to expand, with Google, Facebook and Amazon expected to see double digit growth next year, Oath will only grow by two percent, according to eMarketer analyst Eric Haggstrom.
“It’s always been the case that Google and Facebook primarily, and Amazon secondarily, sucked most of the oxygen out of the industry,” Pivotal Research analyst Brian Weiser said. If Verizon wasn’t willing or able to invest substantially in the business and find a way to differentiate itself to large advertisers, it would be “game over,” he said.
Verizon said in the Tuesday filing that Oath “has experienced increased competitive and market pressures throughout 2018 that have resulted in lower-than-expected revenues and earnings,” adding that the merger of AOL and Yahoo under one company didn’t turn out as expected. The company said it lowered its financial projections after completing a review of Oath’s business prospects over the next five years.
Former AOL chief executive Tim Armstrong announced the reorganizing of Verizon’s media properties and the creation of Oath last spring. “Billion+ Consumers, 20+ Brands, Unstoppable Team,” he said in a Twitter post, which was mocked at the time, with social media users ribbing Oath’s name and what they took as the strained rebranding of legacy Web companies past their prime.
But to Verizon, Oath was the culmination of its new advertising strategy. Verizon bought AOL in part to take advantage of its ad technology, which could be put to work to sell increasingly personalized ads against Yahoo’s content. At the time of the acquisition, Yahoo’s portfolio of websites, including Yahoo Finance and Yahoo Sports, pulled in gargantuan amounts of online traffic. Nearly 200 million unique visitors flocked to Yahoo’s websites last April, according to the analytics firm ComScore, besting every other Web destination except Facebook and Google.
This year, however, Oath could not withstand increased competition in the online ad business, Verizon said, and it expects those pressures to continue.
Verizon’s write-down disclosure comes just days after it announced that 10,400 employees have taken voluntary buyouts to leave the company, as it focuses on the development of its 5G services. The number of departing employees amounted to nearly seven percent of Verizon’s staff, according to the company.