Verizon takes $4.6bn hit on Yahoo and AOL

12 December 2018 | James Pearce

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Verizon Communications has taken a $4.6 billion hit on its digital arm Oath – made from combining the assets of Yahoo and AOL – according to a filing with the Securities and Exchange Commission (SEC).

In the filing, which was issued on Tuesday, Verizon said it had previously valued Oath and all of its assets at $4.8 billion, despite spending more than $9 billion to build the company through the acquisitions of AOL in 2015 and Yahoo in 2017.

Verizon said it is expecting a $4.6 billion non-cash goodwill impairment charge in the fourth quarter of the year, which will eliminate almost all of the existing balance of Oath.

 “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,” the company said in an SEC 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 acquisition of Yahoo and the decision to combine it with AOL to create Oath was part of former CEO (now chairman) Lowell McAdam’s media strategy. McAdam is set to retire, and was replaced in August by former Ericsson chief Hans Vestberg.

Oath represented around 4.1% of US digital ad revenue in 2017, according to eMarketer, but its share is expected to decline to just 3.3% in 2018. Overall, Oath’s ad revenue fell by 7% in Q3 2018, to $1.8 billion.

In its filing, Verizon said that Vestberg and K. Kuru Gowrappan (CEO of Verizon Media Business, which includes Oath) had completed an in-depth review of Oath’s business prospects, leading the write-off. Last month, Vestberg announced a restructure of the entire Verizon business.

The filing said: “Effective August 1, 2018, Hans Vestberg became Chief Executive Officer of Verizon, and effective October 1, 2018, K. Guru Gowrappan was appointed Chief Executive Officer of the Media business. In connection with Verizon’s annual budget process in the fourth quarter, the new leadership at both Oath and Verizon completed a comprehensive five-year strategic planning review of Oath’s business prospects resulting in unfavorable adjustments to Oath’s financial projections. These revised projections were used as a key input into the Company’s annual goodwill impairment test performed in the fourth quarter.”

Verizon has also announced major job cuts, with 10,400 employees no accepting buyout offers meaning they will leave by June 2019. This will also cost the company significantly – to the tune of between $1.8 billion and $2.1 billion, according to the same SEC filing. Nearly half of these employees will exit this month, Verizon added.

Capacity recently spoke with Verizon's Eric Cevis about the direction of the company and how this affects its wholesale division. To read the full interview with Cevis, click HERE