This week, both Yahoo and Verizon report Q3 earnings.
The results are important not just for showing the financial health of the respective companies but also for any impact on the proposed acquisition of Yahoo’s core internet business by Verizon.
Yahoo is Verizon’s latest big splash into the world of internet advertising. Whereas AOL gave Verizon the technology, Yahoo gives it the content it needs to monetise its millions of smartphone customers.
The data breach at Yahoo, which affected a gigantic 500 million accounts, making it the biggest in history, threatens to derail the Verizon acquisition. In an interview, Tim Armstrong, the chief executive of AOL (now owned by Verizon) could not confirm whether the hack will stop the Yahoo-Verizon deal going through.
As it stands the deal is still going through but Verizon is investigating whether the hack had a “material effect” on the company. It would seem logical that Verizon will renegotiate the terms of the deal, likely offering a lower price – perhaps $1bn less than the original $4.8bn.
If Yahoo earnings are disappointing, this would reinforce the idea that the hack is having a material effect. This would especially be true if Verizon beats expectation, which would raise fresh doubts about the need to do the deal at all.
When Yahoo first floated the idea of selling its core internet business in early December 2015, the shares were at $36. When Verizon announced its $4.8bn deal in July shares were at $38. Should the deal fall through, the share price could be expected to fall back to the $36-$38 zone fairly rapidly.
CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.