Yahoo drops the ball on this $100 million deal

Yahoo drops the ball on this $100 million deal

Yahoo! Inc. (NASDAQ:YHOO) just can’t get a break. It has emerged that AT&T Inc. (NYSE:T) has taken a nearly $100 million a year deal from Yahoo, dealing a massive blow to the already struggling Internet pioneer.

For 15 years, Yahoo! Inc. (NASDAQ:YHOO) and AT&T had an arrangement that involved hosting the carrier’s Web and mobile applications. The deal generated $100 million in annual revenue for Yahoo, most of which flowed straight to the bottom line because of the lower cost structure of the arrangement. But the lucrative deal has been snagged away.

AT&T announced that it had brought in Synacor Inc (NASDAQ:SYNC) as its main Web service provider, thus effectively replacing Yahoo. AT&T continues to do business with Yahoo in other areas.

Tough times for Yahoo

The pullout by AT&T from the 15-year contact couldn’t have come at a more difficult time for Yahoo! Inc. (NASDAQ:YHOO). The company is struggling with shrinking revenue and doused investor appetite for the stock. In 1Q2016, Yahoo’s Search revenue fell 21% to $347.7 million and Display revenue was off 1% to $380 million.

Despite a string of acquisitions that have consumed much of the company’s finances, meaningful turnaround remains elusive for Yahoo and CEO, Marissa Mayer remains under intense pressure. Some unhappy shareholders are baying for the blood of Yahoo’s board, believing that disbanding the current board and instituting a fresh one would help turnaround the company. In all fairness though Mayer should be given a lot of credit for her work at Yahoo. If her Board would let her execute her plan instead of constantly gong head to head with her the company may have been in a much better situation than it is now. It remains to be seen if this is just the beginning of large enterprise contracts being pulled from Yahoo due to lack of confidence in their ability to continue operating at necesarry capacity.

Sale of core assets

With a turnaround increasingly becoming difficult, Yahoo is in the process of offloading its core business. AT&T’s chief rival Verizon Communications Inc. (NYSE:VZ) has been cited among potential Yahoo buyers. Bids for Yahoo’s core assets are said to be in the range of $4 to $8 billion.

But with fading revenues such as the latest one involving the loss of the lucrative AT&T contract, it could be difficult for Yahoo! Inc. (NASDAQ:YHOO) to secure a great price for its core business.