Synacor Inc. (NASDAQ: SYNC) is replacing Yahoo! Inc. (NASDAQ: YHOO) as the provider of Web and mobile portal services for AT&T Inc. (NYSE: T). The contract is worth $100 million annually. The initial contract life is three years, but can be renewed each year after the first three years. The development comes as a major blow to the beleaguered Yahoo, which is in the process of offloading its core assets.
But for Synacor Inc. (NASDAQ: SYNC), the deal is a major shot in the arm given that the company has been struggling over the past few years to improve its financials. Shares in Synacor soared following the news that the company had ripped a multimillion-dollar AT&T contract from Yahoo.
AT&T is apparently ending its 15-year contract with Yahoo for its Web and mobile portal services. Although AT&T is retaining Yahoo as the provider of its email services, the remaining contract is only a tiny fraction of the original deal. Yahoo is shopping itself to the highest bidder after years of costly and elusive turnarounds.
AT&T is pulling the $100-million-a-year contact from Yahoo at a time when its main rival Verizon Communications Inc. (NYSE: VZ) is said to be among potential buyers circling Yahoo. It was estimated that the sale of core Yahoo operations could fetch about $4 to $8 billion, but the loss of the AT&T contract to Synacor Inc. (NASDAQ: SYNC) is expected to lower Yahoo’s price tag.
What changes for Synacor?
The deal with AT&T puts Synacor Inc. (NASDAQ: SYNC) on the path to grow to thrice its current size, according to its turnaround CEO Himesh Bhise. Synacor is planning to invest $10 million this year to enable it to develop the products and service that will enable it to provide AT&T’s desktop and mobile portal services. Those investments will include additional staff and back-end operations.
Impact on financials
Synacor Inc. (NASDAQ: SYNC) originally guided 2016 revenue at $125 million, but with the AT&T contract, the company has set itself on the trajectory to hit $225 million in revenue this year. The AT&T deal is also expected to give a major boost Synacor’s bottom-line after it puts the right systems in place. In the case of Yahoo, the bulk of the $100 million contract flowed directly to the bottom-line because supporting AT&T’s Web and mobile services carried a lower cost structure.