Please ensure Javascript is enabled for purposes of website accessibility

Verizon's Oath Hurls a Squirrel at Facebook

By Leo Sun - May 14, 2018 at 10:46AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Yahoo’s new invitation-only messaging app seems dead on arrival.

Verizon's (VZ -1.80%) Oath, the subsidiary that merged AOL with Yahoo's internet businesses last year, wants to challenge Facebook's (META 2.72%) Messenger and WhatsApp in the mobile messaging space. Its play on this market is Yahoo's Squirrel, a group messaging app that lets users invite each other to different chat rooms.

An Oath spokesperson told TechCrunch that it was "experimenting" with Squirrel with a focus on "improving group communication in everyday life." Oath likely hopes that Squirrel's invite-only feature, which blocks the app from scouring a user's contact lists like other messaging apps, will address privacy concerns.

Squirrel's mobile app.

Squirrel's mobile app. Image source: Google Play.

However, initial reviews indicate that early users are confused and frustrated by the restriction. Some users signed up, but gave up because they didn't have access to any invitations. That's admittedly an odd strategy for a mobile messaging app that relies on social connections.

Why is Oath making a messaging app?

Verizon acquired AOL and Yahoo's internet unit to diversify into internet advertising. Oath consists of over 50 media and technology brands, including HuffPost, Yahoo Sports, AOL.com, and TechCrunch.

That ecosystem generated $1.9 billion in revenues last quarter, representing a 13% sequential decline due to "seasonally lower" display advertising volumes. Oath only accounted for 6% of Verizon's revenues during that quarter, but Verizon believes that Oath's expansion could diversify its portfolio away from its slower-growth wireless and wireline units.

Verizon could also bundle more Oath features into its telco offerings to widen its moat against rivals like AT&T, which would evolve into a media powerhouse if it closes its planned takeover of Time Warner.

Oath recently updated its privacy policies to allow the company to scan users' AOL and Yahoo emails to craft targeted ads like Facebook and Alphabet's (GOOGL 1.35%) (GOOGL 1.35%) Google. However, Facebook's practices are now being scrutinized after the Cambridge Analytica scandal, and Google stopped scanning Gmail accounts last year.

Launching a mobile messaging app seems like a logical way to tether more users to Yahoo's ecosystem, which would hopefully translate to higher ad revenues. However, Oath is arriving late to the party with a crippled app that relies on a shrinking ecosystem.

Sorry Squirrel, Facebook already conquered this market

Facebook's WhatsApp hit 1.5 billion monthly active users (MAUs) in February, and it claimed to have one billion daily active users (DAUs) last July. Messenger topped 1.3 billion MAUs last September.

Facebook's Messenger.

Facebook's Messenger. Image source: Google Play.

Yahoo's infamous data breach resulted in all three billion of its accounts being hacked, but the vast majority of those accounts were inactive. However, leaked data posted by The Information in early 2016 revealed that Yahoo Mail had just 56.9 million daily active DAUs at the end of 2015, while Yahoo's homepage only had 52.6 million DAUs.

Those figures, which were already declining in 2015, are probably much lower today. Even if we generously assume that Yahoo mail (which is used for logging into Squirrel) still has about 50 million DAUs, Oath will struggle to get even a sliver of those users interested in Squirrel -- and its "invitation-only" status will exacerbate the pain.

Even Google hasn't had much luck in the mobile messaging market. Google's latest efforts -- which include Hangouts, Allo, Duo, and a new SMS/RCS messaging app called Chat -- still haven't lured many users away from WhatsApp and Messenger.

To make matters even more confusing, Yahoo already has a messaging app. The mobile version of Yahoo Messenger ranks 160th on iOS and 117th on Android in social networking apps according to AppAnnie -- and it's highly unlikely that Squirrel will fare any better.

The bottom line

Verizon plans to grow Oath's user base, monetize it, and eventually bundle its features into an online video service. Unfortunately, dull "experimental" apps like Squirrel don't inspire much confidence in Oath's long-term growth -- which seems bogged down by the baggage of AOL and Yahoo's fading relevance in the tech world.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$50.71 (-1.80%) $0.93
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,204.10 (1.35%) $29.35
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$164.38 (2.72%) $4.36
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,213.75 (1.47%) $32.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.