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Illustration: Aïda Amer/Axios

The upcoming sale of Yahoo and AOL to a private equity firm for $5 billion represents a massive media markdown.

By the numbers: At their dotcom bubble peaks, Yahoo and AOL were valued at more than $125 billion and $200 billion, respectively, or $193 billion and $318 billion in 2021 dollars.

  • Yahoo twice turned down offers to buy Google at a fraction of its cost today. AOL held conversations with Facebook and YouTube in 2006, but ultimately failed to buy either company.
  • The combined value of both companies is now 187 times less than Facebook's market cap and 318 times less than Google's.

The big picture: A string of bad investments and deals wreaked havoc on both firms, culminating in Monday's announcement of a deal to sell to private equity giant Apollo Global Management.

  • AOL made one giant mistake. It famously bought Time Warner for $182 billion in cash and stock in 2000, saddling the company with debt just before the dotcom bubble burst and the rise of broadband made AOL's dial-up services virtually obsolete. While the deal may have helped AOL survive parts of the crash, the failure to execute on a vision for the combined company during a time of economic turmoil ultimately left AOL with unmanageable losses.
  • Yahoo, on the other hand, spent years making lots of smaller bad deals. It spent nearly $10 billion in 1999 buying GeoCities and Broadcast.com, both of which the company eventually shut down. It spent $1.1 billion on Tumblr in 2013, and sold it for less than $3 million in 2019. It sold half of its 40% stake in Alibaba for $7.6 billion in 2012, two years before Alibaba went public for 5 times more. It rejected a $44.6 billion takeover offer from Microsoft in 2008, only to sell to Verizon for 10% of that value less than ten years later.

What went wrong at Verizon: Verizon acquired Yahoo for $4.48 billion in 2017 and AOL in 2015 for $4.4 billion. The deals were meant to give the telecom giant lots of data so that it could sell targeted advertising against its media assets.

  • But it quickly became clear that the data-based ad play wouldn't work, as it was too difficult to compete with the marketing prowess of Google and Facebook.
  • Tim Armstrong, who was hired in 2015 to run Verizon's media operation, left abruptly in 2018, about a year after the Yahoo deal.
  • CEO Hans Vestberg, who became CEO of Verizon in 2018, quickly abandoned plans to invest in the media arm. Verizon took a $4.6 billion write-down for its media unit in late 2018, and failed to invest meaningfully after that.
Data: Company earnings reports; Chart: Axios Visuals

The big picture: Verizon's rivals have also invested in giant media companies, but those deals have borne more fruit in the streaming era.

  • AT&T acquired Time Warner's media assets in 2018 for $85 billion. It's since used those assets to build its streaming service HBO Max.
  • Comcast purchased NBCUniversal in 2011, and it has since used that content to build its ad-supported streaming service Peacock.
  • AOL and Yahoo both lack the premium video assets needed to build a streaming service.

What's next: Verizon's media assets still pull in massive amounts of traffic, and Apollo sees an opportunity to juice more money out of Yahoo and AOL's brands by investing in their ad tech. Sources say Apollo is interested in working with a casino sportsbook to license the Yahoo Sports brand.

Go deeper

Verizon sells Yahoo and AOL to private equity firm for $5 billion

Photo by AaronP/Bauer-Griffin/GC Images

Verizon on Monday announced that it will sell its digital media unit, including Yahoo and AOL, to private equity firm Apollo Global Management.

Details: Apollo will pay $5 billion for a 90% stake in the business, with Verizon retaining a 10% stake. It's a slightly higher price than what was expected, but still far short of the $9 billion that Verizon paid to acquire the businesses.

Trading activity expands in illiquid private debt market, following PE playbook

Illustration: Aïda Amer/Axios

The once notoriously illiquid market for privately placed corporate loans has an increasingly active secondary trading scene.

Why it matters: The evolution of the nearly $1 trillion private debt space follows a similar path to one private equity has already tread — the development of a mature secondary market.

AT&T in talks with Discovery to combine media assets

Illustration: Annelise Capossela/Axios

AT&T is in talks with media giant Discovery about merging its media assets, like CNN, TBS and TNT, according to two sources familiar with the discussions.

Why it matters: A potential merger could allow AT&T and Discovery to better compete with entertainment giants like Disney and Netflix in the video streaming wars.

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