How Much Could Yahoo Boost Verizon Revenues?

Scale matters for consumer social apps as much as it does for mobile service providers, cable TV companies or fixed network telcos. Among other reasons, scale means more customers, more accounts and therefore more gross revenue.

Facebook’s average revenue per user rose 33 percent year over year to $3.32 in the first quarter of 2016. That implies annual revenue per user of perhaps $13.28.

Scale therefore means that every million users Facebook gets should contribute $13,3 million in revenues. Facebook added about six million users in the first quarter of 2016, for example. So Facebook likely grew revenues $79.8 million for the quarter, and therefore as much as
$319 million over a year from that user cohort.

Worldwide, there are over 1.71 billion monthly active users, a 15 percent increase year over year.

The value Verizon can produce from adding Yahoo to its AOL unit likewise hinges on the value of scale.

If one assumes Yahoo can earn $6 per user per year from 800 million users, that implies about $4.8 billion in annual revenue. If Verizon annual revenue is at least $124 billion a year, then mobile advertising lift from Yahoo could be nearly four percent of revenue.

Assuming Verizon can continue to do at least that well, you get some idea of the  lift Verizon might expect, near term, as Verizon tries to position its AOL unit as an alternative to Google and Facebook for mobile advertising.

With the caveat that Verizon had a worker strike that affected second quarter results, it might be worth noting that the second quarter revenue decline was about $1.6 billion, with Yahoo in principle representing about $1.2 billion in quarterly revenue.

Whether Verizon can grow Yahoo users and maintain or raise revenue per user is the test of value, going forward. Scale, in other words, is the upside.

Some might argue the Yahoo acquisition will not help Verizon that much, especially if the core asset depreciates, instead of appreciating. But if it works, the mobile advertising push conceivably could generate eight percent of total Verizon revenues. That is material.
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