Verizon To Write Off Oath And Focus On Networks, Costs Cut

Verizon Communications Inc. (NYSE:VZ) recently announced that it will write off a majority of its media business — Oath — which includes Yahoo (NASDAQ:AABA) and AOL, due to lower-than-expected performance from the combination of businesses that make up Oath. The telecom giant has decided to take $4.6 billion ($4.5 billion after-tax) charge of the $4.8 billion of Oath’s remaining goodwill balance, related to its media assets in the fourth quarter of 2018.

The company had acquired Yahoo for $4.5 billion in 2017 and AOL for $4.4 billion in 2015. Oath has experienced increased competitive and market pressure throughout 2018 resulting in lower-than-expected revenues and earnings. Management expects this to continue, leading to further loss in market positioning in the digital advertising business.

In third-quarter 2018, Oath’s revenues declined 6.9% year over year to $1.8 billion, putting it far behind its target of $10 billion by 2020. Verizon’s original plan was to merge all these businesses under a broader media company to challenge rivals such as Facebook, Inc. (NASDAQ:FB) , Alphabet Inc. (NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN) for ad dollars, but it did not probably turn feasible.

The company has been looking to cut costs as it ramps up investment in its next-generation 5G network, which is expected to fuel growth. In September 2018, Verizon announced a voluntary separation program for select U.S.-based management employees. Around 10,400 eligible employees will separate from the company by the end of June 2019 with almost half of them exiting in December 2018.

The employees will get a salary of up to 60 weeks, bonus and benefits, depending on their length of service. The company expects to record a severance charge in the range of $1.8 billion to $2.1 billion ($1.3 billion to $1.6 billion after-tax) in the fourth quarter of 2018.

In November 2018, Verizon further announced that it will reorganize its business operations into three new segments — Consumer, Business and Verizon Media Group/Oath — to thwart competitive pressure through higher investments in technology upgrade and state-of-the-art infrastructure for faster deployment of 5G.

Verizon expects to complete an internal reorganization of legal entities associated with its wireless business in December 2018. Upon completion, it expects to recognize a non-recurring deferred tax benefit of approximately $2.1 billion in the fourth quarter, which will reduce its deferred tax liability by the same amount.

The largest U.S. wireless carrier by subscribers expects these factors to impact its fourth-quarter financial results. The stock has returned 11.3% against a decline of 5.7% for the industry in the past year.



Verizon currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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