Last Tuesday, Yahoo Inc. got an unexpected increase in their quarterly adjusted profit; this good news, however, has a slight effect on Verizon Communication due to the recent email hacking issue.
In 2014 almost 500 email accounts were hacked, which puts the $4.38 billion deal on shaky ground, Verizon’s general counsel said.
Customer loyalty
Recent profit increase shows that the data breach did not lead to a massive withdrawal of yahoo customers, as some had expected. Customer trends showed positive growth in page views and email usage, Yahoo said.
JMP’s securities analyst Ronald Josey says, even if the recent customer trends are “encouraging,” it’s too early for us to tell the long-term effect of the massive Yahoo hack.
“The message here is email and messaging is a very sticky product and people want to get to their messages,” Josey added.
The increase in page views and email usage could be “500 million people trying to figure out if they’re exposed,” says Fatemeh Khatibloo, a security analyst with Forrester Research.
However, the fact that Yahoo did not see a sudden decrease in users was a sign that email hacking may not lead to negative effects. For instance, results that could influence a deal with Verizon, says Scott Kessler, an analyst with CFRA Research.
“The bottom line here is from a fundamental operational and financial perspective, it doesn’t seem like much has changed at the company over the last quarter,” he added.
Verizon would need to prove that the breach leads to a material adverse change that would allow it to pull out of the deal, the legal expert says.
Profits still rising
Another bright spot for Yahoo was that profit from Mavens – short for “mobile, video, native, and social”, climbed up 24.2% to $524 million. This made Chief Executive Marissa Meyer brag about its growing businesses.
However, despite good standing with Mavens, Yahoo, in general, is still failing in major profit categories. Gross profit dropped 14.1% to $752.5 million.
According to Thomson Reuters I/B/E/S, Total profit hiked up to 6.5 percent to $1.31 billion, just beating the average analyst estimate of $1.30 billion. But after deducting fees paid to partner websites, profit went down to $857.7 million from $1 billion.
In a statement last Friday about Verizon deal, Yahoo said, ‘it would not hold a call or webcast after the release of the results’.
Meanwhile, Analyst at Needham & Co said on Tuesday that Yahoo’s decision to not disclose anything about the deal cast doubts, which lead to the downgrade of their stock rating from “Buy” to Hold.”
Yahoo shares closed up 1.3% on Tuesday extended trading session.
For the third quarter ended Sept. 30, net income attributable to Yahoo jumped to $162.8 million, or 17 cents per share, from $76.3 million, or 8 cents per share, a year earlier.
Excluding some items, Yahoo gained 20 cents per share, beating analysts’ average estimate of 14 cents.
Verizon acquired Yahoo for $4.4 billion last year, which includes Yahoo’s search, email, and messenger assets as well as advertising technology tools with its AOL unit
Major revamp after acquisition
The acquisition would revamp Yahoo into a holding with a 15 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd and a 35.5 percent interest in Yahoo Japan Corp as well as Yahoo’s convertible notes, certain minority investments and its non-core patents.
The deal should close in early 2017, after which Yahoo plans to change its name and become a publicly traded investment company.
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