5 things we like about Verizon-AOL hookup
First, before anyone gets too excited about this acquisition, lets's put Verizon (NYSE: VZ)'s purchase of AOL in perspective. Verizon is buying the company today for $4.4 billion. In January 2000, Time Warner (NYSE: TWX) purchased AOL for $182 billion. It is considered one of the most disastrous mergers and acquisitions in history. So, while AOL short-term shareholders, who have owned the company for the last several years are cheering, it doesn't erase the bad taste of the previous merger with Time Warner for long-term investors.
With that being said, we believe the AOL sale to Verizon makes sense for a lot of reasons. AOL has morphed from a pure Internet- service provider to one focused on content. The focus on video and advertising makes the acquisition a smart move for Verizon.
Read More Why we sold to Verizon: AOL's Tim Armstrong
The recent results announced by Google (NASDAQ: GOOGL), that show more search is now happening on mobile devices, clearly indicates that the desktop is becoming one form of connection, not THE form. Mobile devices will leap into the forefront in future years. Verizon is positioning their brand not to be the next big cellular company, but instead the next big mobile Netflix (NASDAQ: NFLX).
As you can see from a price compression regarding data limits occurring within the wireless space ( data is becoming less and less an issue in terms of cost for subscribers), the groundwork is being laid to stream more mobile video content as a regular part if users experience. In order for Verizon to move towards video relevance, they need a strong presence in the mobile video market in order to compete with the likes of Google and eventually Facebook (NASDAQ: FB).
Verizon is buying AOL in order to become the next Comcast (NASDAQ: CMCSA). AOL currently has 4 percent of the digital-view space and this will help bump Verizon forward in their programming ambitions. As Verizon leverages their cable assets towards closer integration with video content, adding pieces to their corporate arsenal will be important as competitors are already bursting forward ahead of Verizon (Google, Netflix, etc).
Read More Cramer: Why the Verizon-AOL deal is brilliant
So why do we like Verizon and AOL as a combined company?
1) Verizon has a strong market-capture rate in the United States in the wireless space and significant cable assets.
2) Competitors with scale will be the ones that win and Verizon is well-positioned to utilize AOL assets to add a value proposition related to content; this will help with subscriber loyalty.
3) The rollout of Verizon's high-speed 4G LTE network continues to be a strong advantage, which lends itself well to video-playback services.
4) AOL has probably gone as far as they can go on their own and needs a deep-pocketed partner to help them continue their strategic plan. Verizon has the muscle to push AOL content forward to compete with the content market leaders.
5) Don't forget about the Verizon dividend stream, which is close to 4 percent.
It is true that this is a small acquisition for Verizon on a market-cap basis. But what is more important is the strategic thinking behind the acquisition and we understand what they are trying to accomplish. Investing in companies means you understand how management teams expect to compete in the future and the strategic acquisition of AOL suggests Verizon recognizes that they need to be all it on mobile video.
Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California.
Disclosure: Michael Yoshikami owns shares of Verizon but no other companies mentioned. DWM buys Verizon, AOL, Time Warner, Google, Netflix, Comcast and Facebook for clients.
Note: Comcast owns CNBC parent NBCUniversal.
More From CNBC
