Why Verizon sold AOL and Yahoo for about 1% of their peak valuation

The upcoming sale of Yahoo and AOL to a private equity firm for $5 billion represents a massive media markdown. At their dotcom bubble peaks, Yahoo and AOL were valued at more than $125 billion and $200 billion, respectively, or $193 billion and $318 billion in 2021 dollars. AOL made one giant mistake. It famously bought Time Warner for $182 billion in cash and stock in 2000, saddling the company with debt just before the dotcom bubble burst and the rise of broadband made AOL's dial-up services virtually obsolete. While the deal may have helped AOL survive parts of the crash, the failure to execute on a vision for the combined company during a time of economic turmoil ultimately left AOL with unmanageable losses. Yahoo spent years making lots of smaller bad deals. It spent nearly $10 billion in 1999 buying GeoCities and Broadcast.com, both of which the company eventually shut down. It spent $1.1 billion on Tumblr in 2013, and sold it for less than $3 million in 2019. It sold half of its 40% stake in Alibaba for $7.6 billion in 2012, two years before Alibaba went public for 5 times more. It rejected a $44.6 billion takeover offer from Microsoft in 2008, only to sell to Verizon for 10% of that value less than ten years later. Verizon's media assets still pull in massive amounts of traffic, and Apollo sees an opportunity to juice more money out of Yahoo and AOL's brands by investing in their ad tech. Sources say Apollo is interested in working with a casino sportsbook to license the Yahoo Sports brand.