Why is it companies like Verizon buy companies like yahoo only to destroy the few things that made the company valuable? Is there some weird financial instrument that makes this profitable?
Completely guessing... 100% speculation. Yahoo likely owned several hard assets that Verizon wanted. Such as Real estate, patents, ISP bandwidth/peering agreements, IP space.
AOL had gone from on top of the world to collapsing to being financially profitable if not reputationally leading thanks to using the money from their shrinking dialup business to get new businesses in adtech and content. Independent Yahoo on the other hand was unprofitable.
So I'm sure the AOL higher ups pitched the same dream for Yahoo to their Verizon bosses. Take another fallen former giant, shed the deadweight, double down on new/profitable markets and also the idea that the overlap of Yahoo + AOL would cost less to run together than independently since with all the duplication there must surely be efficiencies to be made.
It's not on the face of it an unreasonable bet to make, especially when investors were looking at AT&T diversifying beyond their ISP business and imploring Verizon do _something_. Also given the older age of Verizon's execs and how that fit with Yahoo's target market, they likely had a higher opinion of the value of the yahoo brand than younger techies.
Meanwhile the shareholders of Yahoo were happy. they got their divested Alibaba holdings rather than thinking of them being used it prop up a company that was otherwise on a path to bankruptcy, and Verizon even paid them to take that off them.
As it turned out, that bet didn't work, for a variety of reasons so now all the pre merger leadership of AOL and Yahoo are gone and even was likely a factor in Verizon getting a new CEO who didn't play up this project so much and just wants it not to cost so much
At the same time you need to draw the distinction between valuable for the business vs valuable for the consumer. Tumblr had a porn culture that kept advertisers away, but changing that also drove the users away, so it didn't bring in much money, and yahoo groups didn't have the algorithmic content to allow discretion to the platform to push commercially viable content and so much of the consumption being via email and out of Yahoo's control likely meant that again it wasn't as valuable to advertisers and so worth less.
Disclaimer: I worked there through this, but not on any products mentioned here so my speculation is as much outsider based as yours.
In 2015, the valuation of the company was $4 billion below the valuation of the Alibaba stock it held. A popular interpretation of this is that the main Yahoo! operations were considered to have negative value by investors—though the reality was a bit more complex than that.
They bought it dirt cheap, not at Enterprise SaaS multiple. Companies with commodity pipes dream of owning the content running through them but it’s a very different business.