Coverage: Yahoo spends more cash

Yahoo, which is trying to remain relevant to customers, is purchasing a video ad platform for $640 million. Many analysts and industry watchers have been trying to determine what the company would do with all the cash from the Alibaba IPO.

Josh Beckerman has these details about the rational behind the purchase in The Wall Street Journal:

Yahoo Inc. agreed to buy video-advertising platform BrightRoll Inc. for about $640 million in cash, as the Internet company looks to expand its video efforts.

Yahoo said BrightRoll is expected to have revenue of more than $100 million for this year.

The deal, seen closing early next year, will “dramatically strengthen Yahoo’s video-advertising platform, making it the largest in the U.S.,” Yahoo said.

According to Yahoo, BrightRoll serves 87 of Ad Age’s Top 100 U.S. advertisers. BrightRoll, which will retain its workforce of roughly 400 people, has been adding to its leadership with people from Silicon Valley while also signing on more advertisers.

Yahoo recently pocketed $6.3 billion from the sale of Alibaba Group Holding Ltd. shares. Yahoo has said it plans to return at least half of its cash to shareholders via a buyback or dividend, while others have speculated that the company would look to make larger acquisitions than it has in the past.

The AdAge story by Tim Peterson said video was the hot move for Yahoo and competitors including Google and Facebook:

The ad-tech firm operates programmatic ad auctions but specializes in online’s priciest ad format — video — and does so at a larger scale than Google, Facebook and AOL. That will give Yahoo a better sales pitch when angling for a share of advertisers’ growing online video budgets.

U.S. advertisers are expected to spend $6 billion on digital-video ads this year and $13 billion by 2018, according to eMarketer. BrightRoll is also well positioned as that spending shifts to programmatic platforms. This year only 12% of digital-video ad budgets will go towards videos ads bought programmatically, but that percentage will jump to 40% by 2019, eMarketer estimated.

Following that trend, AOL, Facebook and Google have also ramped up their programmatic video businesses over the past 15 months.

Last year AOL acquired video ad exchange Adap.tv, which helped AOL overtake Google as the country’s largest video ad seller. Earlier this year Google announced that it would start building private video ad exchanges so top-shelf publishers could sell ads against their videos programmatically at a premium. And in July Facebook announced that it was buying LiveRail, which will allow it to sell video ads on other publishers’ properties.

Bloomberg’s Brian Womack detailed some of the criticism Mayer is facing from investors and analysts:

Mayer, who joined the company more than two years ago, is facing shareholder criticism for racking up acquisitions as the company struggles with little revenue growth. In September, activist investor Starboard Value LP questioned Mayer’s leadership and called for a breakup of the Sunnyvale, California-based company. Starboard also asked that Yahoo cease from more dealmaking and cut costs.

On a conference call last month, Mayer said acquisitions have helped increase Yahoo’s user growth. The company’s total user base, including blogging platform Tumblr, has expanded to more than 1 billion and mobile users are at about 550 million, she said. Yahoo bought Tumblr last year for about $1 billion.

Today’s deal would combine Yahoo’s premium desktop and mobile video advertising inventory with BrightRoll’s programmatic platform and publisher relationships, the company said. BrightRoll plans to continue offering its products and services after the acquisition, while keeping about 400 employees.

Yahoo stock has risen 45 percent in the past year, largely because of the company’s stake in Alibaba Group Holding Ltd. (BABA), owner of the biggest Chinese e-commerce company. Yahoo sold some of its shares in Alibaba’s initial public offering in September and retains about 15 percent ownership.

The BrightRoll acquisition in no way detracts from the company’s commitment “be a good steward of capital,” Mayer said in a Tumblr post today.

While most of the coverage focused on Yahoo, TechCrunch did offer a few paragraphs about BrightRoll in a story by Anthony Ha:

BrightRoll was founded in 2006 by Tod Sacerdoti who is still its CEO. Neither the Yahoo press release nor the blog post say what Sacerdoti’s role will be post-acquisition — what Mayer wrote on that front was, “I’ve spent time with Tod Sacerdoti and his leadership team and I cannot wait to have him, his vision, and his team here at Yahoo.”

The company has raised $40 million in funding from investors including Adams Street Partners, Scale Venture Partners, Comerica Bank, True Ventures, Trident Capital, KPG Ventures, Michael Tanne, Fabrice Grinda, Auren Hoffman and Jeff Clavier, according to CrunchBase.

CEO Marisa Meyer must be feeling the pressure to make the purchase so soon after the cash windfall. Yahoo doesn’t seem to have a coherent content strategy since it’s trying to be all things to all people. Increasingly customers aren’t heading to one site for all their entertainment and news. They’re looking for something more curated. Right now, getting big in video while also focusing on native advertising, Tumblr and other ventures seems disjointed. Plus it’s hard to keep focused when you keep bouncing from acquisition to acquisition.