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Why Is Verizon Still Interested in Buying Yahoo?

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Verizon is taking a big bet in video ad market

Verizon Communications (VZ) started its digital media strategy in 2014, and its formative stages appear to be at a peak, with the acquisition of AOL for $4.4 billion in 2015 and its proposed acquisition of Yahoo for $4.8 billion slated to close in 2017.

Verizon has made other acquisitions of smaller media companies such as Millennial Media and also entered a joint venture with Hearst. In this joint venture, Verizon has invested in two digital brands, AwesomenessTV and Complex Media.

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Making use of Yahoo’s 1 billion monthly active users

Yahoo was an important acquisition for Verizon because it gives Verizon access to the one billion customers that use Yahoo properties every month. Verizon can use these users’ data to provide them with targeted ads. Verizon also plans to make use of its relationship with sports leagues such as the NBA and NFL to stream their games on AOL and Yahoo platforms.

With these initiatives, Verizon is looking to become a significant player in the video ad market, which is currently dominated by Google (GOOG) and Facebook (FB). Verizon also expects that Yahoo and AOL will generate meaningful cost synergies. For these reasons—despite all the issues with Yahoo—Verizon is still interested in buying the company.

According to a report from eMarketer, and as the chart above shows, the US digital video ad spending could grow from $7.7 billion in 2015 to $16.7 billion in 2020—a compounded annual growth rate of 17%. Yahoo could help Verizon leverage this fast growth.

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