In its latest effort to increase revenues, Yahoo Inc. (YHOO), is purchasing digital video advertising service BrightRoll for $640 million in cash.
BrightRoll caters to both buyers and sellers of video ads. It links the two and automates the delivery of commercials on the Internet. BrightRoll focuses on enabling businesses to present ads across mobile devices, desktop computers and streaming services.
At its third-quarter earnings conference call, Yahoo stressed the importance of video as a growth platform and promised continued investments in the area. The company has been adding to its video content and has also developed original programming to lure users. While the process of studying user interaction with its video offerings continues, there will be no impact on its results until there is a suitable plan for monetization.
This is where BrightRoll plays a bigger part: the business already generates $100 million a year, so it will be immediately accretive unlike many of the other companies Yahoo has acquired over the last two years. Second, it already has relationships with advertisers that will prove useful to Yahoo. And third, it brings technology that will help monetize the premium video content Yahoo seeks to offer, helping it compete with market leaders Google (GOOGL) and Facebook (FB).
The acquisition is Yahoo's first since it received a $9.4 billion windfall in September by selling a part of its stake in Chinese e-commerce service, Alibaba Group Holding Ltd (BABA). Yahoo assured that it will distribute at least 50% of the $6.3 billion in after-tax proceeds from the Alibaba stake sale to its shareholders.
In July, eMarketer reported that in 2013, Yahoo accounted for less than 3% of web advertising revenues while Google accounted for nearly 32%.
According to eMarketer, though video advertising on the web generates lower revenues, it has a much higher growth rate. Total digital ad revenues are projected to increase 16.7% to $140.2 billion in 2014 while spending on web video ads is expected to grow 56%.
The BrightRoll acquisition is expected to be completed in the first quarter of 2015.
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