The record-setting breach at Yahoo has delivered a new blow to a company that has been ailing for years, and could impact the pending sale of its key assets.
The hack in late 2014 affecting some 500 million users worldwide could further erode confidence in the faded internet giant, which has been on a downward trajectory for some 15 years, analysts say.
"It's a massive black eye for Yahoo and its brand," said Patrick Moorhead, an analyst and consultant at Moor Insights & Strategy.
"Yahoo still has a lot of customers, and they should feel that Yahoo violated their trust. When it comes to online services, trust is a huge issue, and Yahoo has to worry about losing customers."
Moorhead said the disclosure is almost certain to impact a pending $4.8 billion deal to sell Yahoo's key internet assets to telecom group Verizon—which was already a massive letdown for a company worth $125 billion at the height of the dot-com boom.
"Verizon has got to be livid about this," Moorhead said. "But they're not going to talk about this publicly because it would pour gasoline on the fire."
The analyst said he expected the sale to go through "but I would expect the price to go down five to 10 percent" as a result of the news.
In the mid-1990s, Yahoo was among the most popular destinations on the internet, helping many people navigate the emerging web. It became the most popular online "portal," connecting users to news, music and other content. But its fortunes started to fade when Google began to dominate with its powerful search engine.
After a series of management changes and revival efforts, Yahoo decided to sell its main operating business as a way to separate that from its more valuable stake in Chinese online giant Alibaba.
'Hasn't hit bottom'
Roger Kay of Endpoint Technologies Associates said Verizon was effectively blindsided by the news of the hack, and may think twice about proceeding with the deal, given the liabilities it may inherit.
"Yahoo hasn't hit bottom, which is disturbing," Kay said. "And if I were Verizon I would be disturbed because it's a decaying asset. It's declining even before I get my hands on it."
Yahoo said Thursday it was working closely with law enforcement on the breach from late 2014 affecting at least 500 million user accounts, in what could be the largest-ever breach for a single organization.
The stolen information may have included names, email addresses, birth dates, and scrambled passwords, along with encrypted or unencrypted security questions and answers that could help hackers break into victims' other online accounts.
Yahoo is likely to be pressed on why it took nearly two years to discover and report the attack, a fact which could prompt inquiries in Congress.
US Senator Mark Warner said in a statement he was "most troubled by news that this breach occurred in 2014, and yet the public is only learning details of it today."
Warner added that "action from Congress to create a uniform data breach notification standard so that consumers are notified in a much more timely manner is long overdue."
Moorhead said the news is embarrassing for Yahoo whether or not the company failed to discover the breach in a timely manner.
"Either they knew about it and didn't say anything," he said, which could open up Yahoo to questions of hiding information. "If they didn't know about it, then they have a forensics issue."
Scott Galloway, a professor of marketing at New York University's Stern School of Business, said the hack will be damaging for Yahoo and for chief executive Marissa Mayer, who took over in 2012 in a bid to engineer a turnaround.
"Like most scandals, it's not the act but the attempt to cover it up that does the real damage," Galloway said.
"The lag in discovery and disclosure gives the situation the stench of a cover-up."
Although the public has become habituated to news about data breaches, this news may erode confidence in the online ecosystem, according to Galloway.
"The hacks are more damaging to the ecosystem than individual companies," he said.
"Ms. Mayer's obscene compensation and the hack give people the sense the game is rigged and that they can trust no platform."
At the time the deal with Verizon was announced, Mayer's compensation during her tenure stood at $219 million in cash, stock and options, according to Equilar, a company that monitors executive pay. That includes a severance package of $55 million if she is removed within a year of a change of control in the Verizon deal.
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