Yahoo! announced its intention to acquire the remaining 80% stake in Right Media for $680 million, implying a total market value of $850 million, more than 4x the value implied by Yahoo!’s initial $40 million investment in October 2006. The primary strategic rationale to use Right Media as a new selling channel for non-premium inventory could be driven by Yahoo!'s recent display advertising share loss. Only time will tell if it was necessary to buy instead of building the asset. The deal price has to be based on the value that the combined entity can create as opposed to Right Media’s stand-alone financial profile to be justified. The payment terms (approximately 50% cash and 50% stock) were structured to create a tax-free transaction.
Yahoo!’s acquisition of Right Media is likely aimed at helping Yahoo! to better monetize its non-premium inventory. The company has, in the past, struggled to monetize its non-premium inventory, due to difficulty of disintermediating the process from its focus on premium inventory sales. The Right Media platform will give Yahoo! a separate and liquid distribution channel for its non-premium inventory, which the company has already started to move to the Right Media marketplace, yielding ~50% increases in pricing. While the rationale for Yahoo! to have full ownership versus participating as a 3rd party seems less substantiated on the surface, the deal was driven by (1) an immediate need (i.e. time to market) to grow the non-premium business or risk continuing to lose share of display, (2) the realization that if Yahoo!'s contributed inventory is likely to drive significant growth for Right Media and thus Right Media's equity value, then Yahoo! should be the direct beneficiary of its equity value growth while avoiding the 7% transaction fee, (3) occupying a competitive position in the event that a marketplace is a strategic key to building more advertiser and publisher relationships, and (4) the need to accelerate Right Media’s scale and ability to handle more complex transactions by leveraging Yahoo!’s existing technology platform.
While Yahoo! could have internally built a similar platform to the Right Media exchange, the buy versus build decision was primarily based on the time to market advantage, with Yahoo! likely wanting to establish its market position sooner rather than later. The competitive environment is changing quickly, given the continued growth of ad networks, new inventory opportunities for advertisers (i.e. MySpace, Facebook, etc.), and Google’s recent acquisition of DoubleClick. Through this acquisition, Yahoo! is likely looking at a way to better monetize publisher inventory that is processed through the Right Media exchange via bundling that inventory with Yahoo! Inventory, and driving increased demand from advertisers (as a result of greater supply). However, potential conflicts of interest could arise if Yahoo! owns the marketplace and is also participating in transactions, i.e. Yahoo! could be perceived to have priority over other advertisers and publishers participating in the marketplace. This is an issue that Yahoo! will need to address with the other exchange users in order to maintain a vibrant marketplace.
Thanks Anthony Noto, Goldman Sachs Global Investment Research, April 2007
Yahoo!’s acquisition of Right Media is likely aimed at helping Yahoo! to better monetize its non-premium inventory. The company has, in the past, struggled to monetize its non-premium inventory, due to difficulty of disintermediating the process from its focus on premium inventory sales. The Right Media platform will give Yahoo! a separate and liquid distribution channel for its non-premium inventory, which the company has already started to move to the Right Media marketplace, yielding ~50% increases in pricing. While the rationale for Yahoo! to have full ownership versus participating as a 3rd party seems less substantiated on the surface, the deal was driven by (1) an immediate need (i.e. time to market) to grow the non-premium business or risk continuing to lose share of display, (2) the realization that if Yahoo!'s contributed inventory is likely to drive significant growth for Right Media and thus Right Media's equity value, then Yahoo! should be the direct beneficiary of its equity value growth while avoiding the 7% transaction fee, (3) occupying a competitive position in the event that a marketplace is a strategic key to building more advertiser and publisher relationships, and (4) the need to accelerate Right Media’s scale and ability to handle more complex transactions by leveraging Yahoo!’s existing technology platform.
While Yahoo! could have internally built a similar platform to the Right Media exchange, the buy versus build decision was primarily based on the time to market advantage, with Yahoo! likely wanting to establish its market position sooner rather than later. The competitive environment is changing quickly, given the continued growth of ad networks, new inventory opportunities for advertisers (i.e. MySpace, Facebook, etc.), and Google’s recent acquisition of DoubleClick. Through this acquisition, Yahoo! is likely looking at a way to better monetize publisher inventory that is processed through the Right Media exchange via bundling that inventory with Yahoo! Inventory, and driving increased demand from advertisers (as a result of greater supply). However, potential conflicts of interest could arise if Yahoo! owns the marketplace and is also participating in transactions, i.e. Yahoo! could be perceived to have priority over other advertisers and publishers participating in the marketplace. This is an issue that Yahoo! will need to address with the other exchange users in order to maintain a vibrant marketplace.
Thanks Anthony Noto, Goldman Sachs Global Investment Research, April 2007
No comments:
Post a Comment