Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



What's Wrong With Verizon Today?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones (DJINDICES: ^DJI  ) index is trading largely sideways today, up just 28 points at 1:50 p.m. EST. But Verizon Communications (NYSE: VZ  ) marches to a different drummer. Verizon shares dipped as much as 1.3% over the weekend, making it the second-worst Dow performer today.

So what's wrong with Verizon today, when most of its Dow peers are sailing on smooth market waters?

Well, Verizon just announced that it's buying digital content delivery specialist EdgeCast, leaving investors to wonder if Verizon will get what it paid for -- or less -- from the deal.

Verizon didn't disclose exactly how much it's paying for the privately held media streaming service, but respected industry observer Dan Rayburn estimates the deal at "close to $400 million."

With more than $24 billion of intangible goodwill assets on its balance sheet, Verizon is no stranger to the buyout game. Still, Rayburn's estimate would make this one of Verizon's largest acquisitions in recent years, and the biggest bet so far on the teeming content delivery market.

Content delivery services aren't exactly news to Verizon, but the telecom giant has preferred to resell Akamai Technologies (NASDAQ: AKAM  ) services to cover its data customers' CDN needs. Akamai shares plunged 2% on the news that Verizon is taking a direct rival in-house, removing one of Akamai's most important channel partners.

Verizon investors aren't sure that there's any real value in the content delivery market. Akamai has nearly doubled its sales over the last five years, which shows why Verizon might be interested in EdgeCast as a growth driver. On the other hand, smaller content delivery expert Limelight Networks (NASDAQ: LLNW  ) has jumped off the revenue growth gravy train. Content delivery is not a guaranteed success, and Verizon might fail to follow Akamai's example.

AKAM Revenue (TTM) Chart

AKAM Revenue (TTM) data by YCharts.

This deal also flies in the face of recent content delivery trends. In particular, Netflix (NASDAQ: NFLX  ) has built its own content delivery system, cutting its ties to both Akamai and Limelight along the way. If the largest content wrangler on the entire Internet can roll its own CDN, then what's stopping other large content distributors from following the same template? On that note, Verizon just might be buying into a dead-end strategy here.

All valid concerns, but I think that the timing of the EdgeCast deal underscores how much value Verizon sees in content delivery. Remember, Verizon is in the middle of a $130 billion agreement to take over the remaining 45% of Verizon Wireless from longtime partner Vodafone (NASDAQ: VOD  ) . That deal involves a fresh $49 billion bond and doesn't leave Verizon with a lot of financial wiggle room.

But Verizon still sees enough value in content delivery to spend nearly half a billion dollars on EdgeCast, even with the Vodafone deal putting fiscal pressure on Big Red's wallet.

All things considered, EdgeCast won't make or break Verizon's business. I think investors overreacted to the potential risks in the EdgeCast deal. You can take this modest price drop as a gentle buy-in opportunity -- if you were already looking at Verizon as a potential buy.

If not, then nothing much has changed. Take a good, hard look at your Akamai holdings, which may actually suffer from Verizon's new position in the CDN market, and then move on.

Why is Verizon so interested in digital media?
Television, as we know it, is on the verge of a transformation. The companies that prevail in this epic disruption could go on to earn their shareholders untold sums of money. And the companies that lose could very well end up in bankruptcy court within a matter of years. With this in mind, our top technology analysts created a groundbreaking free report that sorts out the likely winners from the losers. In doing so, they reveal the handful of companies that are best positioned to make their shareholders exceptionally rich over the next few decades. To download this invaluable free report before the rest of the market catches on, simply click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2757908, ~/Articles/ArticleHandler.aspx, 8/28/2016 10:26:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,395.40 -53.01 -0.29%
S&P 500 2,169.04 -3.43 -0.16%
NASD 5,218.92 6.71 0.13%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/26/2016 4:32 PM
^DJI $18395.40 Down -53.01 -0.29%
AKAM $55.31 Up +0.75 +1.37%
Akamai Technologie… CAPS Rating: ****
LLNW $1.82 Down +0.00 +0.00%
Limelight Networks CAPS Rating: *
NFLX $97.58 Up +0.26 +0.27%
Netflix CAPS Rating: ***
VZ $52.07 Down -0.68 -1.29%
Verizon Communicat… CAPS Rating: ****