Yahoo! Inc. disclosed another massive data breach yesterday (Dec 14) that might have compromised private information of more than one billion users. Per the company’s press release, the breach happened in Aug 2013 and is a separate incident from the one that affected 500 million accounts (disclosed on Sep 22).

The latest data breach disclosure puts the Verizon Communications (VZ Quick QuoteVZ - Free Report) – Yahoo! deal in jeopardy. Given the persistent erosion of Yahoo’s brand value, Verizon can now consider the data breach to be a “material adverse event.” which will allow it to change the terms of the $4.83 billion transaction. The company can not only seek renegotiation of purchase price but also has the option to opt out of the deal. (Read More: Yahoo's Woes Mount as Verizon Seeks Full Impact Disclosure)

Reportedly, post Sep 22 disclosure, Verizon had asked for a $1 billion discount for completion of the deal. Meanwhile, at its 10Q filed for the period ending Sep 30, Yahoo noted that there is no “assurance” that the sale transaction will be completed in a timely manner or at all.

Although this was a customary advice for investors, we believe that any of the two events will not be beneficial for Yahoo, as the company’s growth prospects remain largely tied-up with the completion of the deal. A discounted purchase price for Yahoo’s core assets will impact CEO Marissa Mayer’s turnaround plans, while a total walk-over will be a disaster for the company.
 

Share Price Affected By Data Breach

Yahoo’s share price shot up significantly post the announcement of the Verizon deal. We note that during the Jul 25 – Sep 21 period, Yahoo shares jumped 15.19% as compared with the Zacks Internet Services Industry’s gain of 6.54%.

However, since Sep 22 data breach disclosure, Yahoo! shares have declined 7.4%, at a faster rate than the Zacks Internet Services Industry’s decline of 2.6%.

Following the latest disclosure, Yahoo! Shares declined 2.25% in after-hours trading.

2013 Breach Largest Ever

According to figures from The Wall Street Journal, Yahoo’s 2013 breach is the largest reported hacking of user accounts that overshadowed past data breaches at Heartland Payment Systems (130 million) and LinkedIn (117 million), which was recently acquired by Microsoft (MSFT Quick QuoteMSFT - Free Report) .

Although user details like name, email addresses, telephone numbers, dates of birth, hashed passwords, and in some cases, encrypted or unencrypted security questions and answers were stolen, the company stated that the breached information did not include payment-card data and bank account information as they were not stored in the affected systems.

Moreover, the company stated that outside investigators have identified some accounts, which were hacked using “forged cookies.” These cookies allowed intruders to access user accounts without password. Per Reuters, FireEye Inc’s Mandiant unit and Aon Plc's Stroz Friedberg are assisting the investigation.

Apart from data breaches and related lawsuits, Yahoo is facing allegations that it scanned all of its users’ emails at the behest of a U.S. intelligence agency by developing custom mail-scanning software. Per TechCrunch, “The surveillance was not disclosed in Yahoo’s biannual transparency report, which documents government requests for user data.”

Zacks Rank

Yahoo currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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