Selling Yahoo and AOL, Verizon turns focus to its 5G network

By guest authors Lauren Hirsch and Edmund Lee from the New York Times. Lauren Hirsch joined the New York Times from CNBC in 2020, covering business, policy and mergers and acquisitions.  Ms. Hirsch studied comparative literature at Cornell University and has an M.B.A. from the Tuck School of Business at Dartmouth. Edmund Lee covers the media industry as it grapples with changes from Silicon Valley. Before joining The Times he was the managing editor at Vox Media’s Recode.

Verizon Communications, signaling that it has given up on its media business, said on May 3, 2021, that it had agreed to sell Yahoo and AOL to the private equity firm Apollo Global Management for USD 5 billion.

The sale also includes Verizon’s advertising technology business. Verizon will retain a 10 % stake in the overall business, it said in a statement.

“This next evolution of Yahoo will be the most thrilling yet,” Guru Gowrappan, Verizon Media’s chief executive, said in a memo to employees Monday, which was obtained by The New York Times.

Mr. Gowrappan will continue to lead Verizon Media following the deal.

The transaction is the latest turn in the history of two of the internet’s earliest pioneers. Yahoo used to be the front page of the internet, cataloging the furious pace of new websites that sprang up in the late 1990s. AOL was once the service that most people used to get online.

But both were ultimately supplanted by nimbler start-ups, like Google and Facebook, though Yahoo and AOL still publish highly trafficked websites like Yahoo Sports and TechCrunch.

The sale signals the unraveling of a strategy Verizon heralded in 2015 when it acquired the faded internet giant AOL for $4.4 billion. The purchase was meant to give Verizon a pathway into mobile, with the goal of using AOL’s advertising technology to sell ads against digital content. Verizon doubled down on that strategy in 2017 with its USD 4.48 billion acquisition of Yahoo, which it combined with AOL under the umbrella Oath.

But Google and Facebook have proved to be formidable competitors in the digital advertising market. Verizon acknowledged their might in 2018 when it wrote down the value of Oath by USD 4.6 billion, attributing the move in part to “increased competitive and market pressures” that had resulted in “lower-than-expected revenues and earnings.”

Still, the business generates plenty of revenue. It recorded USD 1.9 billion in sales in the first quarter, a 10 % gain over last year.

For Apollo, it’s an opportunity to further invest in the digital media space — an industry it has already put money behind with deals for Shutterfly, Rackspace and Cox Media.   And it has plenty of experience with corporate carve-outs like Verizon’s media business.

Apollo is aiming to propel sales growth with an increased focus on the individual brands that it believes are lost inside a large corporate empire,  which could include more premium subscriptions for Yahoo Finance or more   sports betting and fantasy leagues as part of  its Yahoo Sports business two Apollo executives told The New York Times in an interview.

Apollo is also notably upbeat about the prospect for digital advertising as it puts more money behind those efforts amid regulatory scrutiny of some of the biggest players, like Google. And as ads shift from offline to online post-pandemic, Apollo expects the overall industry to grow.

“Does most of that go to Google and Facebook and Snap and Twitter? Of course,” said Reed Rayman, a private equity partner at Apollo. “But, is there still a role for others in the digital media space to benefit from the rising tide, like Yahoo and the other properties? Absolutely.”