Verizon’s media business Oath—comprising the combined businesses of AOL and Yahoo!—is bracing for some more bad news, this time in the form of a massive write-down.
Verizon revealed in an SEC filing today that Oath is expecting to record a non-cash goodwill impairment charge of approximately $4.6 billion during the fourth quarter. The company arrived at that figure after new Verizon CEO Hans Vestberg and new Oath CEO Guru Gowrappan hammered out a new five-year strategic planning review of Oath’s business prospects. The resulting revised projections for Oath were applied in determining the impairment charge.
Verizon said that Oath has experienced increased competitive and market pressures throughout 2018 that have resulted in lower than expected revenues and earnings.
“These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business,” the company wrote. “Oath has also achieved lower than expected benefits from the integration of the Yahoo Inc. and AOL Inc. businesses.”
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Wells Fargo analyst Jennifer Fritzsche said that the write-down for Oath is in line with Verizon’s focus on its network and less on its media business.
“The hype of Oath has been over for some time. Once former Oath CEO Tim Armstrong left VZ, we believe it spoke loudly to the new VZ managements' enthusiasm (or lack thereof) around this segment. While we believed in the “white board” concept of Oath (offering a new digital advertiser of choice beyond Google and FB), we think this has been an uphill fight for VZ without a significant amount of scale and content ownership,” wrote Fritzsche in a research note.
The dire financial outlook for Oath comes after the Verizon division had a down third quarter. Oath revenue for the third quarter totaled $1.8 billion, down 6.9% year-over-year, and it caused the company to adjust its revenue projections.
“Because search and desktop products make up the majority of the Oath business, and we believe pressure in those sectors is likely to continue, we do not expect to meet our previous target of $10 billion of revenue in 2020. The leadership team at Oath is focused on returning to revenue growth by completing the integration of the legacy AOL and Yahoo advertising platforms by year end, implementing initiatives to realize synergies across all of our media assets, and building services around our core content pillars of sports, news, finance and entertainment,” Verizon CFO Matt Ellis said during an earnings call.