By Sarah Krouse and Micah Maidenberg
Verizon Communications Inc. is booking a $4.5 billion accounting
charge related to its Oath media business, conceding that the
company's bet on high-profile internet properties hasn't worked out
as planned.
The wireless giant spent more than $9 billion to create the Oath
business by acquiring AOL in 2015 and then Yahoo in 2017, two web
pioneers that were struggling to grow. Verizon hoped the
combination would make it a more powerful force in digital
advertising, but its share of that market has shrunk instead.
Unable to turn the tide, Verizon recently scaled back its
internet ambitions. Executives are exploring ways to supplement
weaker-than-expected advertising revenue and potentially wind down
some AOL or Yahoo brands.
The moves are part of a broader retrenchment in the digital
media marketplace as legacy companies and once-hot upstarts alike
fail to loosen the grip of Facebook Inc. and Alphabet Inc.'s Google
on both users and marketers.
Several new-media companies, including Vox Media, BuzzFeed and
Vice Media, have run into challenges meeting ambitious
revenue-growth targets, due in large part to the punishing digital
advertising market, The Wall Street Journal has reported.
Vice is cutting 15% of its workforce through attrition, while
Vox Media and BuzzFeed have focused on diversifying to generate
more revenue from areas such as video licensing and e-commerce.
Smaller online publisher Mic recently sold itself for about $5
million, a fraction of its $100 million valuation in 2017.
U.S. digital ad spending is on track to rise 26% this year to
about $111 billion, but Google is capturing 37% of those dollars
while Facebook accounts for another 20%, according to estimates by
eMarketer. Oath's share is expected to fall to 3.3% from 4.1% last
year.
"These pressures are expected to continue and have resulted in a
loss of market positioning to our competitors in the digital
advertising business," Verizon said in a securities filing
Tuesday.
Meanwhile, Amazon.com Inc. has emerged as a new competitor for
digital ad dollars. It is now the No. 3 U.S. player and is on track
to double its online ad business this year, according to eMarketer.
The online retailer gets most of its ad revenue from its website
where companies pay to be listed as a "sponsored product" in search
results.
Verizon said the roughly $4.5 billion after-tax noncash charge
will cancel out the majority of the current goodwill balance for
Oath. Goodwill measures the difference between how much a company
paid to buy another business and the value of the acquired hard
assets.
The company said Tuesday that Oath "has achieved lower than
expected benefits from the integration of the Yahoo Inc. and AOL
Inc. businesses."
The Wall Street Journal reported earlier this month that Verizon
was preparing to write down the value of Oath assets.
In the first nine months of this year, revenue from Oath totaled
$5.6 billion, a sliver of Verizon's total $96.6 billion in revenue
during that period. Verizon in October said the unit's revenue was
likely to be flat in the near term and that it didn't expect to
meet its goal of generating $10 billion in annual revenue from Oath
by 2020.
Oath houses media and technology brands, including HuffPost,
Tumblr and Yahoo Finance. In September, the company said Oath
leader and former AOL chief Tim Armstrong would be stepping down.
His decision came after Verizon opted not to spin off Oath and
instead fold some of the operations into the rest of the
company.
The marriage of AOL and Yahoo didn't go as planned in part
because integrating their advertising technology platforms has
taken longer than expected and still isn't complete, people
familiar with the matter have said. In addition, Verizon executives
were unwilling to share with Oath some data on its wireless
subscribers that would have helped create more sophisticated ad
targeting, these people said.
Verizon executives are now trying to bolster revenue at Oath by
creating premium content and exploring e-commerce. While the unit
will still sell digital ads, it is trying to keep visitors on its
sites longer and make it easier for them to make purchases through
its web properties.
Oath leaders are in the throes of an effort called "Project
Purple" that aims to identify the strongest brands the unit houses.
That effort could result in some brands being closed or merged, the
Journal has reported.
The unit is now headed by K. Guru Gowrappan, a 38-year-old
former Yahoo and Alibaba Group executive. At a November event, Mr.
Gowrappan told employees that Oath is home to brands that "laid the
foundation for the internet," adding that some were "extraordinary
and some forgettable."
Executives are also trying to pipe more of the unit's content
into Verizon devices and services. For example, Oath plans to put
its Yahoo Finance video-streaming video application, which includes
markets and personal-finance coverage, on Apple TV this month,
according to people familiar with the matter.
Hans Vestberg, Verizon's new chief executive, recently
restructured the wireless carrier, creating a new Verizon Media
Group that houses Oath. The former Ericsson AB executive took over
on Aug. 1 and has led a companywide push to cut costs and has made
building a faster 5G network the center of the company's
strategy.
Mr. Vestberg has charged Oath executives with identifying how
news, sports and augmented and virtual reality content would
benefit from the 5G wireless network the company is starting to
build.
Verizon also disclosed Tuesday it would book an after-tax charge
of as much as $1.6 billion in the fourth quarter for a voluntary
retirement package for more than 10,000 of its workers.
The company has charted a different course from other telecom or
cable providers, who have made outsize content acquisitions.
Verizon has put building out a faster 5G network at the center of
its strategy.
Verizon shares have outperformed its rival AT&T Inc., which
acquired Time Warner during the year after winning an antitrust
case. The deal gave AT&T control of HBO, Warner Bros. studio
and cable networks like CNN and TBS.
Shares of Verizon, which rose 1% on Tuesday, are up 11% so far
this year. AT&T has fallen about 20%. Verizon is now the more
valuable company, with a market capitalization of $243 billion,
compared with AT&T's $216 billion.
Write to Sarah Krouse at sarah.krouse@wsj.com and Micah
Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
December 12, 2018 00:21 ET (05:21 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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