SAN FRANCISCO (TheStreet) -- Yahoo (YHOO) is snapping up video advertising platform company BrightRoll in a $640 million cash deal, the company announced Tuesday. This acquisition is one that investors will particularly want to follow closely, given it could be key in turning around Yahoo's declining display advertising business.
Secondly, video is one of the four growth businesses that Yahoo is pegging its future fortunes on.
"We say that video is display 2.0 because we believe it can reinvent and replace the branded banner advertisement. Video, along with mobile, social, and native, represents a new format of online advertising that has the potential to help us transform and modernize Yahoo's display business and return it to growth," said Yahoo CEO Marissa Mayer, in a blog post.
And Yahoo's display advertising business does need help. In the third quarter, Yahoo's display advertising revenue, excluding traffic acquisition costs, fell 6% to $396 million, compared with the same time last year. Driving this decline was a 24% drop in the price per ad, compared with year-ago figures.
"Video is display 2.0. It's what brand advertisers love. It's a format that elegantly and easily transitions from broadcast television to PC to mobile and even to wearables. This is why video is a key part of our strategy," Mayer also noted.
Yahoo edged up in after-hours trading by 0.10% to $49.05.BrightRoll, a privately held San Francisco-based company, brings together publishers into a unified network that uses programmatic advertising. This allows companies to buy and sell video ads in real-time bidding. According to BrightRoll, it "consistently ranks among the top two video ad platforms in ads served." And that is where the money is for Yahoo, since advertisers pay for the number of ads served.
Yahoo notes that BrightRoll's technology also provides consumers with more relevant advertisements. And if the ads are relevant, the advertising theory goes that it will likely increase the number of potential customers to view the ad and possibly make a purchase.
BrightRoll currently powers the digital video advertising needs for 87 of the AdAge Top 100 advertisers and all of the top 15 advertising agencies. Yahoo expects to close the BrightRoll deal in the first quarter of next year.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate YAHOO INC (YHOO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
You can view the full analysis from the report here: YHOO Ratings Report