Friday, January 27, 2017

Verizon's Acquisition of Yahoo Slows Down, Pending an Investigation into Data Breaches

A previous post discussed how Yahoo Inc.'s financial difficulties had led the company's management to get more and more creative in trying to turn everything around. The post also mentioned that a sell-off might be Yahoo's only choice and that, if they did sell, Verizon Communications Inc. would be the most likely buyer. In the several months since that post was written, Yahoo had indeed decided to sell to Verizon. Unfortunately, while the deal was meant to close relatively quickly, Yahoo's recent data breaches have slowed down the proceedings and may lead to a withdrawal of Verizon's offer. In the meantime, however, as the Associated Press of the L.A. Times discuss in their recent article, Yahoo's profit margin has been expanding, even as its net revenue slips.

Even while dealing with the huge repercussions of their data breaches, Yahoo succeeded in improving their financial performance during the fourth quarter. In the fourth quarter of last year, losses were high, so it's good for the company that they have been able to cut costs enough to get some stability back. Over the past few years, Yahoo has been rapidly losing the online advertising market to more powerful competitors like Google. More precisely, Yahoo's revenue from ad sales fell by around 4% in the one quarter. While that may seem like a lot, it's better than the double-digit losses seen over the previous four quarters. Because online advertising is a large portion of the company's income, it makes sense that financial considerations are forcing them to close up shop.

Yahoo announced this week that the $4.8 billion sale of its internet operations is expected to be delayed for at least 3 months while Verizon performs more due diligence and Yahoo faces an investigation by the Securities and Exchange Commission regarding the security breaches. In not just one, but two attacks, hackers were able to gain access to Yahoo's servers containing email addresses, birthdates, and other personal information of more than a billion users. It wasn't just fact that the breach occurred that triggered federal interest; it was that the breaches happened years ago, in 2013 and 2014.

To investigators in the SEC, Yahoo's delay in releasing information about the breaches makes the company seem guilty. Although the SEC claims that Yahoo is complying with requests that the investigators and governmental agencies have made, there are still worries among customers that the company is hiding something. Because of those suspicions, Verizon seems to be slowing down the purchase, no longer sure whether they want to even buy the company anymore. If more negative information comes out after the sale, then Verizon will suffer the losses caused by people's uncertainty. They made the smart move in pushing off the sale by a few months, in the hopes that all of the bad publicity may die down by then.

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