Yahoo Bolsters Its Online Video Platform With Two Acquisitions

by Trefis Team
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Trefis
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Quick Take

  • Yahoo acquired Evntlive and Ptch. Both the companies cater to the growing online video industry.
  • Post the acquisition, both the companies will be shut down and their teams assimilated into Yahoo to develop compelling Apps
  • Yahoo’s online videos are gaining traction with users and advertisers alike.
  • Higher engagement through video content across Yahoo’s properties can lead to improvement in its performance metrics such as unique visitor count and revenue per impression.

In a recent move, Yahoo (NASDAQ:YHOO) acquired two online video players-Evntlive and Ptch, to bolster its online video content offering. While Evntlive is an online platform for live concerts, Ptch is DreamWorks’ incubated mobile animation video startup. These acquisitions once again signal Yahoo’s strategy to acqui-hire talent that can help it develop compelling products and improve user experience.

The online video industry is going through a solid growth phase owing to its increasing popularity among users and digital advertisers alike. While more ad agencies are now shifting their advertisement budgets to online ads, users continue to view more videos online. In this article we will analyze the factors supporting the sector’s growth and how Yahoo’s acquisition fits into its growth strategy.

Click here to see our full analysis of Yahoo

Trends Supporting The Online Video Industry

Online video ads industry is growing at a robust pace with strong support from the content and the advertising side. On the content side, both supply and user demand is increasing due to proliferation of  low cost-high quality video recording and viewing devices such as handheld cameras, smart connected devices (which include tablets, smart phones and notebook PCs) etc. Alongside, low storage costs of online content is also contributing to the rise in supply. As a result, online video viewing is increasing at a meteoric rate. According to Adobe, mobile video views jumped 300% in 2012. [1] Ooyala estimates that mobile devices accounted for more than 10% of online video consumption in Q1 2013. [2]

On the advertising side, the aforementioned viewing habits of consumers are facilitating the migration of ad budgets from TV to Internet. While TV ad spending is expected be around $75 billion by 2017, video online ad spending is expected to exceed $9 billion by 2017, according to eMarketer. [3] Moreover, digital video ad spend is increasing at a faster pace and a major portion of this growth is coming from mobile devices. According to eMarketer, mobile ads share in online video ad spending is expected to increase from 12.6% in 2012 to over 29% by 2017. These advertisers believe that shifting TV ad budget to digital channel increases the reach and effectiveness of their ad campaigns. [4]

However, online video ads cost per impression (CPM) still lags TV CPM. While a Turns study estimates that cost per impression (eCPM) for online video is in the $8-$12 range, [5] TVB estimates this at $25 for TV. [6] We expect TV and digital video advertising spend to converge as multi-platform and multi-screen video advertising get integrated.

Acquisition To Bolster Yahoo’s Mobile Video Content

The display ads division currently makes up almost 40% of Yahoo’s total revenues and 15% of its estimated value. Content is the main driving force behind display ad revenue, which influences both users and advertisers on Yahoo. While users care about the quality of content and personalized information, which leads to better engagement, advertisers want to showcase more ads.

Considering the increasing use of mobile devices to view video content, it is imperative for an online content company to improve its video library for mobile devices. According to comScore, Yahoo clocked in close to 45 million unique visitors for its video content in the U.S., well below 165 million for Google and 67 million for Facebook. [7] This is significantly below the 196 million unique visitors for Yahoo’s core website in July 2013, when it trumped Google.

However, Yahoo’s recent acquisitions are aimed at bolstering its mobile video capabilities, unique user count and customer experience. Yahoo is in the middle of retooling all of its web offerings to mobile compatible apps, and developing new apps to bolster its flagging empire. In order to do that, it’s been acquiring small companies with products and teams that have strategic value of some sort. Through Evntlive’s acquisition, Yahoo will integrate its team into its video unit that works on Yahoo screen (Yahoo’s online video property) and Yahoo music. Furthermore, the Ptch team will help the company in extending its mobile video capability.

We believe that these acquisitions will not only improve user engagement but also drive growth in unique visitor count. As web traffic from mobile device is increasing, successfully building mobile apps can help the company in increasing its unique visitor count. The number of unique visitors is vital for Yahoo’s display ad revenue as higher traffic generally translates into more pages viewed across Yahoo’s websites. This ultimately results in an increase in the number of ads shown. We currently forecast the number of unique users across Yahoo’s properties to rise from 800 million to 890 million per year by the end of our forecast period. If this number reaches 1.5 billion per year as a result of improving content, our price estimate would increase by 10%.

Additionally, improvement in content and user engagement also increases time spent on the website. Advertisers are willing to pay higher revenue per impression for sites that engage users. According to comScore, Yahoo is ranked third in terms of time spent by U.S. users on the website. [8] As Yahoo enhances user engagement by developing more user centric mobile video content for its properties, we expect monetization to improve in the future resulting in higher revenue per page view (RPM). Currently, we estimate RPM for Yahoo at $1.20 per 1000 impressions. However, if RPM improves to around $1.70, there can be 5% upside to our price estimate.

We currently have a $31.17 price estimate for Yahoo!, which is 20% below its current market price.

Notes:
  1. Mobile Video Views Surge 300%; Tablets Fuel Growth And Engagement, April 12 2013, www.marketingland.com []
  2. Global Video Idex Q1 2013, June 2013, www.Ooyala.com []
  3. US Total Media Ad Spend Inches Up, Pushed by Digital, August 22 2013, www.emarketer.com []
  4. Shifting Up to 15% of TV Ad Spend to Online Builds More Effective Reach at a Lower Cost, According to New Research from IAB, February 25 2013, www.iab.net []
  5. Global eCPM Trends in Q2, July 15 2013, www.marketingcharts.com []
  6. TV Cost & CPM Trends- Network TV Primetime, www.tvb.org []
  7. comScore Releases September 2013 U.S. Online Video Rankings, October 22 2013, www.comscore.com []
  8. 10 web sites where surfers spend the most time, March 2013, www.usatoday.com []
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