Verizon / Yahoo, Edison View: “Verizon Is Embarking On Building An Ecosystem… It Is Up To Verizon’s Team To Turn The Yahoo Assets Around”

Following the news about Yahoo breach, Richard Windsor, Analyst at Edison Investment Research commented below.

Richard Windsor, Analyst at Edison Investment Research:

Richard Windsor“With Verizon, Yahoo is likely to become irrelevant. Verizon is building an ecosystem but second rate assets are unlikely to get Verizon very far without inspirational management to make these assets shine. On top of the $3bn it is paying for Yahoo’s core business, Verizon also appears to be in advanced discussions to purchase a video streaming start-up called Vessel which would take Verizon / Yahoo’s coverage of Digital Life to 51% putting it ahead of many of its competitors.

However, Digital Life is only a measure of whether an ecosystem has the right assets and makes no measure of quality or execution. The problem at Yahoo is simple – while it has good assets and good traction in the fixed Internet, it has been unable to migrate any of that traction into mobile. Yahoo claims to have over 600m monthly active users on mobile and we suspect that almost all of these only use Yahoo Mail on the phones and nothing else. Yahoo has invested large sums of money in digital assets during Marissa Mayer’s tenure but high management turnover combined with very poor execution has meant a very poor return for investors. For example, we calculate that Yahoo has been able to monetise just 12% of the opportunity presented by the assets that it owns. The challenge for Verizon is to take these assets, add them to the others that it already owns and to create a thriving community on mobile devices.

Verizon has two big problems – second rate assets and bench strength.

Second rate assets

The assets that it has purchased are second rate in the eyes of users who prefer the services of Google and Facebook which means that Verizon has a lot of work to do to make these assets more appealing as well as ensure that they work well on both mobile and fixed.

Bench strength.

Yahoo’s management has shown that it is unable to execute which means that it is up to Verizon’s team to turn the Yahoo assets around. Unfortunately Verizon’s history as a provider of packets and capacity, means that it lacks the bench strength to make this acquisition deliver any of the potential that it offers.

Hence we fear the net result will be that Yahoo becomes increasingly obscure as more and more of the user’s Digital Life moves from the PC onto mobile.

Yahoo continues to offer an irrelevant challenge to Google, Facebook, Apple or even Microsoft each of which are cementing their position in the digital ecosystems of life and work. Of these we prefer Samsung, Microsoft and Baidu although Apple looks very attractive for a long term investor happy with the dividends and share buy backs.”

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