Verizon Communications (VZ, Financial) recently completed the acquisition of AOL for $4.4 billion and this may be good news for long-term investors. Verizon’s revenue has been moving south over the past few quarters and this move may be just what the company needed to spur growth.
Verizon announced the signing of an agreement to purchase AOL for $50 per share -- an estimated total value of approximately $4.4 billion. The company’s addition of AOL steers its LTE wireless video and over-the-top video strategy. The agreement will also support and connect to Verizon's IoT platforms, generating a growth platform from wireless to IoT for consumers and businesses.
AOL is a leader in the digital content and advertising platforms space, and the combination of Verizon and AOL creates a scaled, mobile-first platform offering directly target at the $600 billion global advertising industry. AOL's advertising technology is very interesting for Verizon, a business that saw a rise in revenue of 21% during AOL's last quarter. The all-cash deal prized at $4.4 billion or $50 per share may seem too costly for AOL, but it makes sense as AOL generated almost $12 billion in free cash flow last year. AOL's recent investment in streaming video - suited for the mobile platform - is a blessing in disguise for Verizon. At the same time, AOL now gives Verizon an edge over wireless rival AT&T (T, Financial), who's still betting on television subscribers with its $48 billion deal for DirecTV (DTV).
Another Positive
Verizon developed FiOS Custom TV in reply to customers who demanded more choice and control over their TV service. With FiOS Custom TV, a small business gets 34 featured base channels, plus local broadcast channels, and at least two genre-based packs of channels out of a choice of seven. FiOS Custom TV for Business is the latest addition to Verizon's industry-leading family of FiOS services, which also include FiOS Internet service -- with its unmatched equal upload and er speeds -- and rock-solid voice service, each with 99.9 percent reliability.
Verizon continue to meet confident revenue trends guided by FiOS in the consumer business. In the first quarter, consumer revenues were up 4%, representing 11th consecutive quarter of 4% better growth. In the first quarter FiOS, consumer revenue grew 9.8% guided by customer growth, increased penetration of the company’s Quantum products and some pricing actions. At the end of the quarter, 62% of its consumer FiOS Internet customers subscribed to a data speeds of 50 megabits per second or higher. Verizon is seeing the highest rate of growth in the 75 megabits speed tier. In broadband, the company added 133,000 net FiOS customers and now have a total of 6.7 million FiOS Internet subscribers, which is 41.5% penetration. Also, the overall net broadband subscribers increased by 41,000 in the quarter.
Conclusion
Verizon and AOL were both struggling to grow their top-line over the last few quarters. The acquisition will help Verizon steer clear of the growth problem and looks like a good deal. In addition, the company’s FiOS Custom TV is also making headway in the consumer market. These 2 factors will spur Verizon’s stagnant growth, making it an excellent buy for investors.
