Telstra Corporation Ltd announces $273 million impairment

The Telstra Corporation Ltd (ASX: TLS) share price is on course to finish the week with a day in the red.

In morning trade the telco giant’s shares are down almost 1% to $3.61.

Why are Telstra’s shares lower today?

This morning Telstra announced that it expects to make a non-cash impairment and write down the carrying value of Ooyala, its US-based intelligent video business, to zero.

According to the release, management expects to recognise an impairment charge of $273 million against goodwill and other non-current assets in its upcoming half-year results, subject to audit and risk committee and board review and approval.

What is Ooyala?

After initially acquiring a 9% stake in the business, Telstra optimistically increased its holding to 98% in 2014 as part of a broader strategy to provide end-to-end solutions for broadcasters and over-the-top companies.

Around 18 months ago Telstra impaired the business at the time of its FY 2016 results. Since then the company has made substantial efforts to improve the performance of the business, but unfortunately this hasn’t been a success. In light of this, the company plans to exit the ad technology part of the business.

It does, however, see a future for Ooyala’s video player and workflow management system. But not enough to stop it from impairing all of the goodwill associated with the business.

Should you invest?

Considering the company’s plan to become more of a technology company than a telco company in the future, this misadventure is slightly worrying.

However, I have confidence that the company has learnt from this and is now fully aware just how imperative it is that it invests its capital much more wisely in the future.

And while it is by no means a low risk investment, I think Telstra is attractive at the current share price and worth considering as a buy ahead of TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC). Especially with its proposed FY 2018 22 cents per share dividend, which equates to a fully franked 6% yield.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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