Two Big Reasons Verizon Communications Inc. (VZ) Still Needs Yahoo! Inc. (YHOO)

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When Verizon Communications Inc. (NYSE:VZ) conducts its quarterly conference call in about a week, we will perhaps learn more about its plans for acquiring Yahoo! Inc. (NASDAQ:YHOO), since the recent revelation that Yahoo’s data breach was dramatically more far-reaching than originally reported. As we’ve written before, Verizon needs Yahoo, and that need continues to grow despite the data breach. Specifically, Verizon needs Yahoo to fight growing challenges on two fronts…

First, Verizon must change to stay relevant (and profitable) because its traditional wireline and wireless businesses are becoming marginalized and saturated, respectively, and Yahoo (combined with the earlier AOL acquisition) will help Verizon evolve into the profitable and growing online advertising space that the company is strategically pursuing out of necessity.

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And second, Yahoo will help Verizon keep the cash flow spigots open so as to constantly feed the big, safe, growing, dividend payments that Verizon shareholders demand.

Verizon’s Evolution:

“In periods of rapid change, the most important question a corporate leader can ask is, are we the company we need to be for the future?”

That was the question posed by Verizon’s CEO, Lowell McAdam, in his most recent annual letter to shareholders. And while Verizon is making significant efforts to be the company it needs to be, it’s doing so out of dire necessity. For example, Verizon has become a leader in building out the nation’s best wireless network because it was clear that wireless would marginalize its traditional wireline revenues.

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