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Why the Smart Money Was Always on Verizon's Buying Yahoo!

By Motley Fool Staff - Aug 23, 2016 at 8:22AM

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As Verizon tries to expand beyond being a connection provider, this was an obvious deal. But will it be a profitable one?

In this segment of the Motley Fool Money podcast, Chris Hill, Jason Moser, Matt Argersinger, and Simon Erickson discuss Verizon's purchase of Yahoo! Even though it makes sense as part of the same strategy that had Verizon buy AOL, the question remains: Is there enough value in these properties to justify their purchase, even at these fire-sale prices?

A full transcript follows the video.

This podcast was recorded on July 29, 2016.

Chris Hill: Welcome back to Motley Fool Money. Chris Hill here in the studio, with Matt Argersinger, Jason Moser, and Simon Erickson. There was news other than earnings reports this week: On Monday, Verizon announced it is buying Yahoo! for 4.8 billion. That does not include Yahoo! Japan or the company's stake in Alibaba. There's still a lot of stuff to get worked out before this gets finalized in early 2017, Matty, but this is one of those situations where all along, the smart money was on Verizon, and that's why it was the smart money.

Matt Argersinger: We'll see if it turns out to be a smart acquisition. I think it makes a lot of sense for Verizon; they are really trying to move beyond just providing services to people, wireless, broadband, or cable, and that's just being -- it's a highly competitive market, so they think there's this big pie out there for digital advertising, which we know there is, looking at results from Facebook and others. And buying Yahoo!, which, by the way, it's amazing, there's still about a billion people who use Yahoo! on a very regular basis, whether it's just on the sites or email. So they've got a huge audience, they've got ad targeting technology that Verizon is going to combine with their AOL acquisition that can help the company.

I just think this is remarkable, though. Yahoo! at its peak was worth about $125 billion, and Microsoft, in 2008 I believe, almost bought Yahoo! for about $50 billion, and here is Verizon paying less than $5 billion for the core business of Yahoo!, which is just astounding to me. And even at that price, which some people are saying is a bargain for Verizon, and of course, they're a huge company, so it's a drop in the bucket, I'm very hesitant to say that they're going to get a lot of value out of that.

Hill: Well, you mentioned AOL. So once upon a time, Yahoo! worth $125 billion; AOL once upon a time worth $160 billion, and Verizon in the past year has bought both of those companies for ...

Argersinger: Pennies.

Hill: ... For under $10 billion. It's like they got in a time machine. What was big in 1998? That's what we want to buy.

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