Microsoft Corp. (NASDAQ: MSFT) waited until the ninth inning and two outs to deliver the walk-off game-winning home run with AQuantive Acquisition (
NASDAQ: AQNT). Microsoft is one of the top 20 innovators of
The Innovation Index. And Microsoft delivered the home run in style: the home run did not just clear the field, the platforms and the bleachers -- it cleared the entire stadium. The home run hit was worth $6 billion!! And for AQuantive investors, a mouthwatering $66.50 a pop - all cash (no credit). Importantly, the offer was 85 percent higher than AQuantive's closing price of May 17, and 29 times the Seattle-based company's anticipated 2008 earnings.
This is by far Microsoft's biggest acquisition, easily eclipsing the previous acquisition by over $4 billion and a lot of change.
Web Advertising companies are getting plucked up in a hurry. This is the fourth Web ad acquisition since April 13, when Google announced the DoubleClick deal for $3.1 billion. WPP Group Plc agreed to buy 24/7 Real Media Inc. (
NASDAQ: TFSM) for $649 million. Yahoo agreed last month to buy 80 percent of Right Media that it doesn't already own for $680 million. Why would Microsoft cough up $6 billion when it did not want to pay $3.1 billion for DoubleClick? Was
DoubleClick a smart buy for Google? The multiple based on earnings before interest, taxes, depreciation and amortization that Microsoft is paying is almost double what WPP will pay for 24/7, Wachovia Capital Markets analyst John Janedis said in a note. AQuantive is more profitable and has a larger share of the market than 24/7, and growing faster than ValueClick Inc. (
NASDAQ: VCLK).
Comparison between AQuantive, 24/7 Real Media and ValueClick
AQuantive is by far the largest company in revenue and revenue growth (estimated) in comparison to DoubleClick ($150 million 2006 estimated revenue), 24/7 Media, and Right Media($75 million to $100 million 2006 estimated revenue). AQuantive is poised to grow faster than ValueClick, and is increasing the marketshare over 24/7. AQuantive is smaller than ValueClick in absolute revenue, although has produced consistent Quarterly revenue growth in the last few quarters. For instance, in the latest quarter, AQuantive was the only company that grew over previous quarter's results. Both 24/7 and ValueClick's revenue declined from previous quarter.
Annual Revenue comparison
Although ValueClick's annual revenue is higher than AQuantive's revenue, AQuantive is estimated to grow faster and almost equal ValueClick's revenue by 2008.
Quarterly Revenue Comparison
Again, ValueClick's quarterly revenue is higher today than that of AQuantive's.
Quarter over Quarter Revenue Growth Comparison
This is where AQuantive really shines. It is by far showing a more consistent quarter over quarter revenue growth compared to ValueClick and 24/7.
Microsoft beat out other bidders for AQuantive, Chief Financial Officer Chris Liddell said on a conference call.
"This deal takes our ad business to a new level," said Kevin Johnson, president of the Microsoft unit responsible for online services, in an interview. "We're committed to increasing our slice of the $40 billion worldwide Internet ad market."
Microsoft has major catching up to do in the ad sales market. According to Bloomberg story, Microsoft's ad sales grew 23 percent last quarter, less than Google's 66 percent. Microsoft had $1.61 billion in ad sales in 2006, less than the $10.6 billion for Google, said Charles Di Bona at Sanford C. Bernstein & Co.
Google dominates the market for ads linked to search results by handling 48.3 percent of Web searches. Microsoft won 10.9 percent of U.S. searches in March, said Reston, Virginia-based ComScore Inc., which tracks Web use.
>>Because Microsoft trails in search ads, the company is trying to attack by convincing advertisers to focus to broader graphical ad campaigns across multiple types of media.
AQuantive, with about 2,600 employees, will help Microsoft garner more ad revenue from its MSN Web sites as well as newer areas for advertising such as the video-games, Internet Protocol television and Internet-based Office programs, Johnson said.<<
According to Microsoft:"This deal expands upon the Company's previously outlined vision to provide the advertising industry with a world class, Internet-wide advertising platform, as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments."
"The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry," said Steve Ballmer, chief executive officer of Microsoft. "Today's announcement represents the next step in the evolution of our ad network from our initial investment in MSN(R), to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all."
According to Microsoft, the aQuantive acquisition enables Microsoft to strengthen relationships with advertisers, agencies and publishers by enhancing the Company's world- class advertising platforms and services beyond its current capabilities to serve MSN.
What is the new value generation?:
* Advertisers and ad agencies will benefit from a world-class media planning, buying and campaign management solution to drive maximum ROI and optimize their reach to audiences across the increasingly fragmented, interactive media landscape.
* Media owners/publishers will gain access to best-in-class inventory optimization and monetization solutions across a full suite of rich media, video and targeting capabilities.
* The broader advertising ecosystem will benefit from the leading interactive advertising agency, Avenue A Razorfish, continuing to serve its impressive client roster, while also embedding the voice of the marketer into Microsoft's next generation advertising solutions and services.
AQuantive brings three key innovation properties to the table:
* Atlas provides a set of advanced tools for both advertisers and publishers.
* DRIVEpm provides services to publishers and advertisers that match advertiser campaigns with publisher inventory enabling all parties to maximize ROI.
* Avenue A Razorfish is one of the largest interactive ad agencies in the world, providing advertisers with industry-leading digita marketing consultation, media planning and buying, and creative services that help advertisers use the online channel to build meaningful, profitable relationships with their customers.
Bottomline:
Better late than never. Microsoft waited to buy the best available digital marketing company in the present market. Perhaps Microsoft was smart to pass up DoubleClick.
AQuantive is a great buy for Microsoft because it:
1. Provides instant global credibility in the ad business with the three key properties; in particular Avenue A Razorfish.
2. Is Located a stone's throw away from Microsoft. Hence, the integration and collaboration will work like clockwork.
3. Catapults MSN business across various properties, provides MSN the shot in the arm that was needed to wake up and possibly have a go at Google Inc. (NASDAQ: GOOG).
References:
Microsoft Press
Bloomberg
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