Oath Inc.

Oath Inc. was the rather curious name for the media and technology subsidiary created by Verizon Communications in 2017. It was formed by mashing together two titans of the early internet era: AOL, which Verizon acquired in 2015 for $4.4 billion, and the core internet business of Yahoo!, which it bought in 2017 for $4.5 billion. The grand idea was to combine the vast user bases and content platforms of these former dot-com darlings (think HuffPost, TechCrunch, Yahoo Finance, and Yahoo Mail) with Verizon's mobile network and data. By doing so, Verizon hoped to build a powerful third force in the digital advertising market to challenge the dominance of Google and Facebook. However, this ambitious project was short-lived. The combined entity struggled to find its footing, and in 2019, the Oath brand was retired and rebranded as Verizon Media. The division was ultimately sold off to a private equity firm in 2021, marking the end of Verizon's grand media experiment.

When Verizon announced the creation of Oath Inc., the strategy seemed plausible on paper. The company was making a bold bet on the convergence of content and distribution, a popular theme in the media world at the time.

The acquisitions of AOL and Yahoo! were classic examples of a large corporation buying legacy brands in an attempt to pivot into a new, high-growth area. Both AOL and Yahoo! had once been the gateways to the internet for millions of people, but by the mid-2010s, they had lost significant ground to nimbler, more innovative rivals. Verizon saw an opportunity to acquire these assets at what seemed like a discount compared to their peak valuations. The portfolio of brands was impressive, spanning news, finance, sports, and email services, and collectively they still attracted hundreds of millions of monthly users. The plan was to stitch them all together under the Oath umbrella.

The key buzzword justifying the multi-billion dollar shopping spree was Synergy. Verizon executives argued that combining Yahoo's audience, AOL's ad-tech platforms, and Verizon's own trove of mobile user data would create a powerhouse. This new entity, Oath, would supposedly offer advertisers unparalleled targeting capabilities, thus unlocking immense value that the separate companies could not achieve on their own. It was a compelling story of 1 + 1 = 3, a common refrain in the world of Mergers and Acquisitions (M&A).

For value investors, the story of Oath Inc. is a masterclass in what can go wrong when grand strategic visions collide with harsh business realities. It serves as a powerful cautionary tale about the risks of large, transformative acquisitions.

The promised synergies never materialized. Instead of creating a streamlined advertising juggernaut, Oath became a complex and unwieldy organization. Integrating the vastly different corporate cultures and aging technology stacks of AOL and Yahoo! proved to be a monumental challenge. The result? The business underperformed expectations dramatically. By the end of 2018, Verizon was forced to take a massive Write-down of $4.6 billion on the value of Oath. This Asset impairment was a public admission that the company had massively overpaid. The huge amount of Goodwill recorded on the balance sheet after the acquisitions—an intangible asset representing the premium paid over the fair value of the assets—had evaporated. For Verizon's shareholders, this was a direct destruction of value.

The rise and fall of Oath offers several timeless lessons for the prudent investor:

• Be Skeptical of “Synergy”: This is often the most abused word in M&A. While appealing in a presentation, realizing cost savings and revenue opportunities from merging two large, complex companies is incredibly difficult. Always ask for concrete evidence of how synergy will be achieved.
• Price Matters, Even for Famous Brands: Verizon bought declining assets, hoping to reverse their fortunes. A core tenet of value investing is not to overpay, no matter how famous the brand. Buying a struggling company, even at a seemingly low price, is risky. Buying it for billions is a gamble that rarely pays off.
• Turnarounds are Tough: The idea of a Turnaround is romantic, but the reality is that most fail. Creating a successful company is hard. Reviving one struggling business is even harder. Attempting to revive two struggling businesses by smashing them together is a recipe for disaster.
• Watch the Balance Sheet: The massive write-down was the final confirmation of failure, but the warning signs were there for investors willing to look. An acquisition that creates a huge amount of goodwill on the balance sheet deserves extra scrutiny, as it represents a significant risk of future impairment if the deal sours.