Yahoo! (NASDAQ:YHOO) announced on Monday, July 21, that it is acquiring mobile ad exchange Flurry.  While the company has not disclosed the amount spent, it did state that this acquisition will help monetize its rapidly expanding mobile user base, which stood at over 450 million mobile monthly active users in Q2.
Flurry is the industry leader in optimizing the mobile user experience by serving more personal ads. It extensively uses its analytics to provide over 170,000 developers with data to better understand their audience. Furthermore, it also has an RTB platform called the Flurry marketplace that enables automated sales of ads across different ad properties. This acquisition is important for Yahoo as it can significantly boost its mobile ad revenue and resurrect its faltering online ads business. In this note, we will look at how Yahoo’s revenues can increase in the future.
Yahoo’s Foray In Mobile RTB
Over the past few years, content providers have been increasingly adopting ad-exchange mechanisms that use real-time bidding (RTB) platforms. An RTB or programmatic platform is a method of selling and buying online display ads in real time. RTB aggregates impression slots offered across multiple ad networks and matches them (based on advertisers’ target, budget and placement requirements) with the most appropriate ads. Additionally, an RTB employs a dynamic pricing auction method that allows the publisher to supply his impression to the highest bidder at any given time. This results in better cost efficiency, higher performance and greater granularity in targeting and measuring an ad’s effectiveness. eMarketer expects advertisers to spend $4.86 billion on RTB this year and RTB to increase to $12 billion by 2018. Furthermore, the biggest jump in RTB spending has been in mobile.  Growth in mobile RTB is set to soar even higher in 2014. According to an Adexchanger report, mobile display RTB ads saw a 47% jump in Q1 2014 on a quarterly basis. With this acquisition, Yahoo hopes to capture a sizeable share in the increasing mobile RTB business and thereby boost its ad revenues.
Acquisition Can Boost User Engagement And Mobile Revenues
Content is the driving force behind display ad revenue and affects both users and advertisers on Yahoo. Users care about the quality of content and personalized information, which together lead to better engagement. Yahoo is offering customized content to individuals based on their search history and sharing patterns on social media. It now plans to combine its customized content with bespoke ads to improve user experience. This can not only improve user engagement but also boost its mobile unique users. The number of unique visitors is vital for Yahoo’s ad revenues as more people visiting the website generally translate into more pages viewed across Yahoo’s websites. Currently, Yahoo’s mobile monthly active user base stands at 450 million. If Yahoo’s mobile monthly active user base were to increase by 50% by 2020, its revenues could be meaningfully higher. Better content and user engagement can also increase the time spent on the website and advertisers are willing to pay higher revenue per impression for these sites. Yahoo is ranked third in terms of time spent by a user on the website.  We expect revenue per page view (RPM) for Yahoo to improve due to these efforts. Currently, we project RPM for Yahoo to increase to $1.10 per 1000 impressions by 2020. However, if it were to increase to $1.50, our stock price would increase by 5%.
At present, we have a $34.38 price estimate for Yahoo!, which is in line with the current market price.Notes:
- Yahoo to Acquire Flurry to Strengthen Mobile Products, July 22 2014, yahoo.tumblr.com [↩]
- Entertainment Grabs Biggest Share of Mobile RTB Ad Spend Worldwide, May 8 2014, www.emarketer.com [↩]
- Most visited websites in the United States in April 2014 by user engagement, May 2014, www.statista.com [↩]