Verizon – Vitriolic Oath

A packet-pushing future awaits

• Verizon confirms my long-held belief that the one good thing that Marissa Meyer did for long-suffering Yahoo shareholders was to sell the Yahoo core business to Verizon.
• Verizon has completed its annual budget process for 2019 which includes an impairment test for the goodwill that the company carries on the balance sheet.
• Goodwill is the difference between the net assets of a company and the price that an acquirer paid to buy the company and represents the extra value that should be created under its new owner.
• The aim of this goodwill test is to ensure that the goodwill is justified and that the outlook for the acquired business still matches the price that was paid for the company.
• It comes as no surprise to me (see here) that Oath(the combination of AOL and Yahoo) is doing so badly that its forecasts can only support a tiny fraction of the goodwill that was put on the balance sheet at the time of acquisition.
• This is why Verizon is writing off 96% of all the goodwill of Oath resulting in a $4.6bn goodwill impairment charge in Q4 18.
• It is a sign that, contrary to promises, AOL and Yahoo are exactly what I thought they were (see here) which is two has-been Internet giants that have been left to wither for so long that they are irrelevant and virtually worthless.
• At the time of acquisition, Verizon had two main problems.
  • First, the fact that both of the assets making up Oath were second rate.
  • Second, bench strength: Yahoo’s management clearly demonstrated that it was unable to execute meaning that it was up to Verizon’s team to turn the Yahoo assets around.
  • Unfortunately, Verizon’s history as a provider of packets and capacity meant that it lacked the bench strength to make this acquisition deliver any of the potential that it offered.
• The result is the gentle decline into oblivion that we are currently witnessing.
• Sometime in the near future, I expect Oath to be quietly closed down.
• Consequently, Verizon will now need to differentiate itself as a pusher of the cheapest, fastest and most reliable packets available.
• Any more forays into the digital ecosystem are likely to end with more vitriolic oaths being uttered by its shareholders.