Just in time to replace the Comcast/Time Warner failed mega deal, comes a new telecom acquisition. Giant telephone and cable provider Verizon announce the acquisition of AOL today. According to the Wall Street journal, “the all-cash deal values AOL at $50 a share, a 23% premium over the company’s three-month volume-weighted average price. AOL shares rose 18% in morning trading to $50.18. Verizon shares fell 1.7% to $48.98.”
Of course, given the general state of disdain for AOL amongst the hipster set–with an AOL email address leading to derision and jokes about elderly subscribers still on dial up internet–one wonders what Verizon could possibly be thinking here.
Verizon Communications (VZ), formed by the merger of Bell Atlantic and GTE, is one of the world’s leading providers of high-growth communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States. Verizon is also the world’s largest provider of print and on-line directory information.
AOL Inc. (AOL) is a leading global Web services company with an extensive suite of brands and offerings and a substantial worldwide audience. AOL’s business spans online content, products and services that the company offers to consumers, publishers and advertisers. AOL is focused on attracting and engaging consumers and providing valuable online advertising services on both AOL’s owned and operated properties and third-party websites. In addition, AOL operates one of the largest Internet subscription access services in the United States, which serves as a valuable distribution channel for AOL’s consumer offerings.
Knowledgeable analysts note that AOL is actually a video powerhouse. The company is ranked behind only YouTube and Facebook in unique video views. The company was also in the top five for unique website visitors in March, 2015.
The company has also made a series of canny acquisitions of its own in the past few years–which include 5min Media and Adap.tv. The video services AOL controls allow for strong ad revenue, which is the holy grail for “free” internet sites. With the AOL deal, there is the potential that Verizon will finally be able to deliver television content to any device. AND this content may now be integrated with a strong targeted-ad service to provide vastly increased revenues.
Thus, this piece of the puzzle, if correctly handled, will allow Verizon to become more than just a telecom utility providing the wires, cell towers, and bandwidth for others. With this purchase, Verizon becomes both a provider of access AND content. And as they provide that content, they should be able to fully benefit from it with the targeted ad services also possessed by AOL. The purchase provides them a chance to compete with both Google and Facebook. Of course, it remains to be seen whether the company will be able to pull off this holy grail-type quest.
Prior to the announced acquisition, we had a HOLD recommendation on AOL INC . Based on the information we had gathered and our resulting research, we felt that AOL INC had the probability to ROUGHLY MATCH average market performance for the next year. The company exhibited ATTRACTIVE Company Size but UNATTRACTIVE Book Market Ratio.
Prior to the announced acquisition, we had a BUY recommendation on VERIZON. Based on the information we had gathered and our resulting research, we felt that VERIZON COMM had the probability to OUTPERFORM average market performance for the next year. The company exhibited ATTRACTIVE Company Size and Volatility.
