The deal has been finalized. Verizon will acquire AOL for a reported $4.4 billion. While minuscule considering the mobile phone provider’s net worth of $200 billion, this marks a clear move towards expansion across platforms.
AOL has long been considered past its prime. Its competition has not only increased in volume, but also in capacity as the company has become largely culturally irrelevant.
Once the Goliath and now David, AOL has been forced to change with the times. Google, Facebook and other contemporary media moguls have led the charge in the burgeoning market of Internet advertisement sales.
In this department, AOL has outperformed expectations, yet still has a long way to go and will receive a significant boost from this acquisition. At the end of the most recent quarter, the company outperformed revenue projections by $30.5 million. This included a 12 percent bump in ad sales over the past year to $483.5 million.
$483.5 million dollars may sound like a lot, but when compared to the $59.06 billion Google made from advertising in 2014, it is clear that AOL has a long way to go. That said, these gains are significant because they not only show that there is room for growth, they also point to the fact that there is more of the market to be captured.
When analyzing AOL, its business plan, assets and room for growth prior to said earnings report, Goldman Sachs downgraded the company citing (surprise, surprise) competitive concerns.
Interestingly enough, the acquisition of AOL by Verizon directly addresses the main concern from the report, which was articulated by analyst Debra Schwartz as, “We…are increasingly concerned about relative ad underperformance longer term as companies like Facebook expand off-platform capabilities.”
Currently, AOL almost exclusively exists on traditional computer platforms. With mobile devices widely accepted as the newest, fastest and most promising new industry, Verizon will make the perfect partner to transition the AOL advertising success into new platforms.
Many liken the deal to a very similar deal involving AOL and Time Warner, which signaled the peak of the dot-com bubble. The intention is the same according to Jonathan Miller, chief executive of AOL from 2002 to 2006, “Put together content, distribution and access.”
Verizon has certainly weighed that into their acquisition, but has a different model to achieve more positive end gains. This is an effort to branch out, and shake the perception (and reality) that the mobile provider is just that, solely a mobile provider. Other attempts to utilize Verizon’s hefty investment in its LTE network have largely failed.
AOL provides Verizon with benefits too. Verizon has lacked content and faltered with its automated auction-based advertising programs on mobile platforms, an area that AOL has been relatively successful in as of late.
While these two services will be welcomed into the Verizon family, there are other benefits that AOL provides. While this service is certainly antiquated, AOL is still a core provider of dial-up Internet, raking in $182.6 million from that sphere alone. Dial-up, while certainly not an emerging market, is a consistent revenue stream devoid of annual reinvestment and upkeep costs.
Verizon, anxious for expansion, spent a hefty amount in the transaction. After the its Monday closing, AOL stocks were valued at $42.59 per share. The deal saw Verizon spend a flat $50 per share, leading to a tremendous uptick in the AOL stock not only because of the high per share prices paid by Verizon, but also the potential for expansion provided by Verizon’s wide reach over the mobile phone platform.
AOL is not a solution, but a means to improvement for Verizon in the field of content. This is a small fraction of Verizon’s net worth, and clearly not the final step to leveling the playing field with Google. The benefit for both companies is clear, but the question remains: will it be enough to stay relevant?