Verizon’s Oath writedown comes on top of a pile of poor decisions

Verizon is ending the year on a bad note. Its Oath media unit has been given the writedown treatment and been rendered virtually worthless, while new CEO Hans Vestberg has been forced to slash 10,400 jobs by the end of June 2019. While workforce cuts are in most cases a necessary evil and this was frankly an inevitable outcome from Vestberg’s appointment, Verizon clearly needs a plan B if it wants to get through 2019 without being acquired. Behaving a little more like AT&T, for instance.

An idea we have floated before is that Verizon might have large shareholding slices taken up by Comcast and Charter, including getting places on the board. Right now, the market capitalization of Verizon seems to make this improbable – but that can change in a heartbeat.

The operator clearly made some poor bets prior to Vestberg’s appointment in August, splurging some $10bn on a bunch of internet businesses – namely AOL and Yahoo – all way past their prime. But even since Guru Gowrappan was put in charge of Oath in October, the situation has worsened, forcing management into completing “a comprehensive five-year strategic planning review of Oath’s business prospects resulting in unfavorable adjustments to Oath’s financial projections,” as stated in Verizon’s SEC filing this week.

Only last month Verizon started phasing out the Oath brand, migrating services and technologies to the newly formed Verizon Media Group sector, which is designed to serve as one part of a reorganized three-pronged Verizon – focusing on Consumer, Business and Media. At the time, Faultline Online Reporter said a major question mark loomed over whether Oath and its addressable advertising platform might actually be a more successful entity spun off from Verizon? The odds on Vestberg spinning off Oath have now plummeted, perhaps to just to spite his predecessor Lowell McAdam who was firmly against spinning out Oath in any format.

After Oath underwent a dramatic face lift in mid-September, we ran the headline “Oath Ad Platform emerges from surgery – real deal or botch job?” Naturally, we leaned towards the latter, but we never expected to receive confirmation so soon.

Specifically, Verizon expects to record a non-cash goodwill impairment charge of approximately $4.6bn in Q4, from Oath’s total goodwill balance of $4.8bn. In addition, it expects to record a severance charge in the range of $1.8bn to $2.1bn in the fourth quarter.

“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,” stated Verizon.

You bet it has. Amazon is unsurprisingly causing all sorts of disruption in the advertising industry as its ad technology arsenal grows at such a rate that if it were a boxer it would be accused of taking steroids. Meanwhile AT&T recently unveiled its own Oath rival in the form of Xandr, planning to make a series of smaller acquisitions in the advertising sector, following its $1.6bn purchase of the Adnexus platform in June. Even Altice USA has joined in the fun with its new audience-based multiscreen advertising marketplace Athena which, concerningly for Oath, has been collaborating with Xandr to sell Altice USA’s addressable TV inventory at a national level.

According to eMarketer, Oath’s share of digital ad revenues in the US declined from 4.1% in 2017, to 3.3% in 2018. At that rate, Oath will be squeezed out entirely in a few short years, leaving Verizon with no media play, no advertising play, no content play, a paltry fixed line business, but the country’s largest mobile subscriber base – clocking in nearly 117m wireless retail connections as of Q3.

The mobile business continues to grow at a decent pace and Verizon is now almost entirely reliant on being first to 5G, but what happens when rivals like T-Mobile start offering content bundles tied to 5G connections over the coming years? Verizon needs to break out of the US and fast, if the Verizon brand is to survive the test of time.