Call it The Revenge of the Dinosaurs. That’s how I look at the deal for Verizon, a fuddy-duddy old-line (please forgive the pun) phone company, to buy the original businesses of Yahoo, once among the Internet elite.
Combine that transaction with Verizon’s 2015 purchase of AOL, another onetime Internet high-flyer, and anyone with a sense of history and a feel for irony just has to laugh.
Here’s what I find so funny.
During the Internet stock bubble, when many on Wall Street predicted that these two firms would own the future, AOL and Yahoo had combined peak stock market prices totaling more than a quarter of a trillion dollars. Verizon’s total purchase price for both companies: $9.2 billion.
And there’s more. AOL and Yahoo were the first two Internet companies added to the Standard & Poor’s 500-stock index, and both their stocks soared as a result of the inclusion. Now, they’re being bought for small change (relatively speaking) and getting broken up for parts. Pathetic.
No, I’m not mocking the people who work at the former AOL and at Yahoo’s original businesses. Some of them are friends of mine, and I have respect for the efforts that they and their colleagues are expending to try to get their employers competitive with the likes of Facebook and Alphabet (the parent company of Google).
What I’m mocking is the idea that anyone can predict the future with enough precision to justify stock market valuations that reached up to $160 billion for AOL and $125 billion for Yahoo when those companies were, at best, only marginally profitable.
Meanwhile, boring old “Baby Bell” telephone companies such as Verizon and what was known as SBC (and is now AT&T) were projected to have mediocre futures at best.
AOL, then seen in many quarters (though not by me, I’m glad to say) as an unstoppable new media colossus, went for a moonshot in 2000, swapping its shares for those of old-media giant Time Warner in what proved to be the worst big takeover in history. At least as far as Time Warner shareholders were concerned.
By the time the remnants of AOL were ejected from Time Warner (formerly AOL Time Warner) in 2009, the world had changed.
While AOL was going for the moon and Yahoo was growing like mad, Verizon and the old SBC, supported by unexciting but lucrative businesses such as residential telephone service, evolved.
They gobbled up other former Baby Bells created by the breakup of the old phone monopoly, AT&T. SBC ultimately devoured its onetime parent and took its name, to become AT&T. And now they’re big, big deals.
The reason I’m including AT&T in this column is another irony, one that I discussed four months ago but can’t resist bringing up again.
It’s the way that Apple’s stock, formerly a high-flyer, turned into a dog in March of 2015, after S&P Dow Jones Indices put it into the 30-stock Dow Jones industrial average and threw out AT&T to make room.
Apple stock promptly swooned. Since then, according to Howard Silverblatt, an S&P Dow Jones Indices senior index analyst, Apple has been the worst-performing stock on the Dow, down about 24 percent as of Monday’s market close. AT&T, by contrast, was up about 28 percent.
He says that the Dow is 277 points lower than it would have been had AT&T been left in and Apple left out.
So there you have it. Two companies, once among the brightest — if not the brightest — of internet stars have turned into rounding errors. And two old Baby Bells have not only survived, but also thrived, with one consuming AOL and Yahoo, and the other’s stock price making mighty Apple an iMbarrassment for the Dow industrials.
For today, at least, the message is clear: Dinosaurs Rule!
ALLAN SLOAN
