Yahoo acquires video
ad service BrightRoll
for $640 million in attempt to boost revenue
Yahoo is buying
digital video advertising service BrightRoll for $640 million in the Internet
company’s latest attempt to boost its revenue after years filled mostly with
financial futility.
The acquisition
announced Tuesday marks Yahoo’s first major purchase since reaping a $9.4
billion windfall in September by selling part of its stake in a rapidly rising
Internet star, Chinese e-commerce service Alibaba.
Yahoo has promised to
distribute at least half of the $6.3 billion in after-tax proceeds from the
Alibaba stake sale to its shareholders. That gives CEO Marissa Mayer the option
of spending the rest on acquisitions that could enable the Sunnyvale, California,
company to recover some of the ground that it has lost to rivals Google. and
Facebook. in the booming online ad market.
BrightRoll, based in
San Francisco, helps to automatically place ads in videos displayed on personal
computers and mobile devices. Since its founding in 2006, it has built
relationships with most of the biggest advertisers in the U.S., helping the
service generate more than $100 million in annual revenue, according to Yahoo.
That makes the
BrightRoll deal look quite different from the only larger acquisition that
Yahoo has made since hiring Mayer as its CEO in July 2012. Mayer bought online
blogging service Tumblr for $1.1 billion last year, even though that New York
company hadn’t yet proven it could make money.
In contrast,
BrightRoll already is profitable, according to Yahoo. Meanwhile, Tumblr isn’t
expected to bring in $100 million in annual revenue until next year, at the
earliest.
“Acquiring BrightRoll
will dramatically strengthen Yahoo’s video advertising platform,” Mayer
predicted in a Tuesday blog post.
Investors didn’t seem
to be as enthusiastic about the deal. Yahoo’s stock dipped 3 cents to $49.02 in
extended trading.
If Mayer is right,
BrightRoll could help Yahoo reverse a long-running decline in display
advertising — a category consisting of video pitches and other marketing with a
visual element. Through the first nine months of this year, Yahoo’s display
advertising revenue had declined 4 percent from last year to $1.2 billion after
subtracting commissions.
Meanwhile, ad revenue
at Google and Facebook has been steadily rising by 20 percent or more in most
quarters as marketers pour money into digital campaigns to connect with
consumers spending more time gazing into screens on PCs and mobile devices.
Yahoo’s share of the
worldwide ad market now stands at about 2.4 percent, down from 3.9 percent in
2011, according to the research firm eMarketer. Facebook’s share has climbed
from 3.6 percent in 2011 to a projected 8 percent this year while Google has
held on to a 32 percent share of a much larger market.
“This plugs a hole for
(Yahoo),” said Outsell analyst Randy Giusto. “They obviously needed to do
something.”
Mayer is under more
pressure to get Yahoo rolling in the right direction now that the company has
brought in more money from its recent sale of Alibaba stock. What’s more, Yahoo
still owns 384 million shares of Alibaba stock currently worth $44 billion. The
Alibaba holdings are the main reason that Yahoo’s stock has been hovering
around its highest levels in more than 14 years.
Activist shareholder
Starboard Value LP issued a challenge to Mayer in September in a letter
critical of the more than 30 acquisitions that she had previously made for a
total of about $1.6 billion. Those acquisitions seemed to make little financial
sense, according to Starboard, which urged Mayer to consider buying rival AOL.
as a way to save money and bring in more ad revenue.
Yahoo so far hasn’t
given any indication that it’s interested in joining forces with AOL, which
currently has a market value of about $3.5 billion.
Mayer has said that
Yahoo is considering ways to minimize taxes on future sales of its Alibaba
stock, a step that Starboard had also implored the company to consider.
Starboard didn’t
immediately respond to requests for comment about the BrightRoll acquisition.
Associated Press