Yahoo Eyes Video Ad Dollars With BrightRoll Acquisition

50.10
Trefis
YHOO: Yahoo! logo
YHOO
Yahoo!

Yahoo! (NASDAQ:YHOO) announced on Tuesday, November 11, that it is acquiring video ad programmatic platform BrightRoll for $640 million in cash. [1]. This acquisition can catapult Yahoo to #1 position in terms of the number of ads served in US. The online video industry is growing at a rapid pace due to its increasing popularity among users and digital advertisers alike. However, the ad technology surrounding this industry has been slow to take off. Currently, BrightRoll leads the video ad tech industry, and continues to dominate over some of the worthy ad tech platforms such as LiveRail and Adapt.tv. [2] In this article, we will analyze the trend supporting online video ads industry and the ad exchange platforms. Furthermore, we also explore the revenue opportunity for Yahoo.

See our complete analysis of Yahoo here

Trends In Video Ad Spending And Ad Tech

Relevant Articles
  1. Yahoo Price Estimate Revised To $50 As Company Commences $3 Billion Buyback
  2. Yahoo Earnings: Revenue Decline Continues As Deal For Core Business Closes In June
  3. Yahoo Earnings Preview: Revenue Set To Decline As Slide In Ad Revenues Continues
  4. Yahoo Earnings: Slide In Core Advertising Derails Revenue Growth Once Again
  5. Should Verizon Continue To Pursue The Yahoo Deal?
  6. Yahoo Earnings: Search And Display Revenue Growth Continues To Elude The Company

Online video ads industry is growing at a robust pace with strong support from the content and the advertising providers. The change in consumer behavior is prompting the migration of TV ad budgets to online spending. eMarketer expects digital video spending to reach around one-sixth of what is spent on television ads by 2018. While TV ad spending is expected to exceed $78 billion by 2018, video online ad spending is expected to exceed $12.71 billion by 2018, according to eMarketer. [3] Additionally, digital video ad spend is increasing at a faster pace and much of this growth is coming from mobile devices. eMarketer estimates that online video ad spending will increase to $5.96 billion in 2014. Most of this videos ad spending will be from desktop-based ads— totaling $4.52 billion in 2014, or 75.8% of digital video ad spending, vs. $1.44 billion for video ad spending on tablets and smartphones. By 2018, these figures will converge, when online will still slightly outspend mobile video—$6.64 billion to $6.07 billion. [3]

Over the past few years content providers have been increasingly adopting ad-exchange mechanisms that use programmatic platform, which includes open auctions, invitation-only/private auctions, unreserved fixed rate/preferred deals, and automated guaranteed/programmatic – real-time bidding (RTB) platforms. [4] An RTB is a method of selling and buying online display ads in real time. RTB aggregates the impression slots offered across multiple ad networks and matches them (based on the advertiser’s target, budget and placement requirements) with the most appropriate ads. Additionally, an RTB employs a dynamic pricing auction method, which allows the publisher to supply his impression to the highest bidder at any given instant. This results in advantages such as better cost efficiency, higher performance and greater granularity with targeting and measuring an ad’s effectiveness. According to IAB, the programmatic market (including auction, and direct deals) is expected to top $10B in 2014 and grow to $20B by 2016. While RTB remains the dominant part of programmatic spending (92% in 2014), it is expected to fall to under 60% of total programmatic spend by 2016 as programmatic direct increases. [5]

BrightRoll To Boost Yahoo’s Revenues

According to our estimates, Yahoo’s other revenues is its smallest division and makes up 5% of its value. With this acquisition, Yahoo has reaffirmed that it plans to fortify itself in the programmatic ad tech space. We believe that programmatic ad platform will be a key growth driver for Yahoo, allowing it to efficiently match impressions with relevant display ads that in turn boosts revenues.

According to Yahoo, BrightRoll is expected to produce more than $100 million in revenue this year. BrightRoll provides complete programmatic video technology stack across all screens, with different form factors, available in the market place. BrightRoll continues to not only feature in the Top 10 list of ad videos but also maintain its #1 ranking. According to comScore, BrightRoll reached nearly 52.4% of audiences in the U.S in September 2014. [2]

If the programmatic platform captures 30% of the $12 billion in video ad spending, the total addressable market for BrightRoll will be  approximately $3.6 billion. At present, we project other revenues, which include revenues from third party sites, to grow to $958 million by 2021. However, if it were to capture 15% the projected market share in the video ads programmatic industry, BrightRoll alone can generate over $500 million in revenues. This would translate into over $1.5 billion in revenues. Additionally, we also expect that Yahoo’s RPM will increase due to better management of  unused video ad inventory and better sales to advertisers. Currently, we project that RPM will grow to $1.12 by the end of our forecast period in 2021. If RPM increases to $3 instead, our price estimate gains an additional 15%.

We currently have a $44.19 price estimate for Yahoo, which is approximately 10% below the current market price.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

 

Notes:
  1. Yahoo to Acquire BrightRoll, November 11 2014, finance. yahoo.com []
  2. comScore Releases September 2014 U.S. Desktop Online Video Rankings, October 22 2014, www.comscore.com [] []
  3. US TV Ad Market Still Growing More than Digital Video, June 12 2014, www.emarketer.com [] []
  4. Top 10 Things You Need to Know about Programmatic but Were Too Afraid to Ask []
  5. Top 10 Things You Need to Know about Programmatic but Were Too Afraid to Ask, November 4 2014, www.iab.net []