How TubeMogul Acquisition Can Help Adobe’s Marketing Cloud Division?

Earlier this month, Adobe( NASDAQ:ADBE) announced that it was acquiring TubeMogul, an ad tech company for buying and measuring video advertising company, for $540 million.  ((Adobe acquires video ad company TubeMogul for $540M, www.techcrunch.com))  The online video industry is growing at a rapid pace due to its increasing popularity among users and digital advertisers alike. The ad technology surrounding this industry has been evolving rapidly. Currently, TubeMogul enables an advertiser to run programmatic ad campaigns across digital screens, television and out of home channels. 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 Adobe.

See our complete analysis of Adobe here

Trends In Video Ad Spending And Ad Tech

The online video ads industry is growing at a robust pace, with strong support from both content and advertising providers. The change in consumer behaviour is prompting the migration of TV ad budgets to online spending. Furthermore, the growth in digital video ad spending is driven by a substantial increase in mobile video allocation. Additionally, many advertisers are allocating more of the ad budget for online video ads, cannibalizing TV video ad budgets. While TV ad spending in the US is expected to exceed $77 billion by 2020, video online ad spending is expected to exceed $16.7 billion by 2020, according to eMarketer. ^[1]. eMarketer estimates that online video ad spending will increase to $11.7 billion in 2017.

Over the past few years, content providers have been increasingly adopting ad-exchange mechanisms that use a programmatic platform, which includes open auctions, invitation-only/private auctions, unreserved fixed rate/preferred deals, and automated guaranteed/programmatic – real-time bidding (RTB) platforms. An RTB is a method of selling and buying online display ads in real time. An 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 OwnerIQ, the programmatic market (including auction, and direct deals) is expected to top $47 billion in 2019. ^[2]

TubeMogul To Boost Adobe’s Revenues

According to our estimates, Adobe’s marketing cloud is its fastest growing division and makes up 28% of its value. It forayed into digital marketing with the acquisition of Omniture in 2009 and currently offers eight products under its marketing cloud solution that includes Audience Manager, Campaigns, Experience Manager, Social, Primetime and Media Optimizer. The Adobe marketing cloud includes a complete set of analytics, social, advertising, consumer targeting, web experience management and cross-channel campaign management solutions. Currently, Adobe generates nearly $1.3 billion in annual revenues. Adobe is continuously looking to grow this division’s revenue by acquiring companies and expanding its reach.

With the TubeMogul acquisition, Adobe has reaffirmed that it plans to fortify itself in the programmatic ad tech space. We believe that the programmatic ad platform will be a key growth driver for Adobe, allowing it to efficiently match impressions with relevant display ads that in turn boosts revenues.

According to last filling from TubeMogul earnings, it is expected to generate over $200 million in revenue this year. TubeMogul provides complete programmatic video technology stack across all screens, with different form factors, available in the market place. Additionally, TubeMogul provides tools to measure the effectiveness of ad dollar spent on video ads . According to Adobe, TubeMogul could also help it capitalize on the growth of automated TV ad buying.

If the programmatic platform captures 50% of the $16.7 billion in video ad spending, the total addressable market for TubeMogul will be approximately $8.3 billion in the US. At present, we project other revenues to grow to $2.3 billion by 2018. However, if it were to capture 10% the projected market share in the video ads programmatic industry, TubeMogul alone can generate over $800 million in revenues. The deal is expected to close in the first quarter of 2017.

We currently have a $103.55 price estimate for Adobe, which is in line with the current market price.

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1. Digital Video Advertising to Grow at Annual Double-Digit Rates, June 20 2016, www.emarketer.com [↩]
2. Why Programmatic is the Future of Digital Display Advertising, May 9 2016, www.adweek.com [↩]