August 8, 2013
AOL Closes Biggest Deal Yet, Nabs Adap.TV For $405 Million
Peter Suciu for redOrbit.com - Your Universe Online
While AOL continues to make the transition from Internet gateway to ad-driven digital media company, on Wednesday it reaffirmed that it looks to offer serious competition to Google and Yahoo! as it announced the acquisition of automated video ad server Adap.TV. Moreover, the company beat analysts' expectations for the recent quarter.
AOL will pay $405 million for the San Mateo, California-based digital video advertising service, which provides a set of tools that allows publishers and brands to buy and sell online ads in real time. This marks AOL Chief Executive Tim Armstrong's biggest takeover yet since he took the helm of the company in 2009, and eclipses the $315 million it spent to buy Huffington Post in 2011.
Armstrong was previously president of Google's Americas operation. Since taking over as CEO at AOL he has been instrumental in building up the company's ad tech properties as a way to attract revenue from third parties, while also giving a boost to the company's own publishing properties including AOL.com and the aforementioned Huffington Post.
"Let me take my chairman- and CEO-role hat off for a minute. If I had to pay more percentage of share of the Adap.tv deal myself personally out of my bank account, I would've paid it. I think it's that strong of a deal on both sides," Armstrong said during a conference call to discuss third-quarter results, as reported by Cnet.
Armstrong further noted that Adap.TV could help make AOL a "clear global leader" in the online video market, which he believes could be the most important growth sector in the industry.
According to estimates from market research firm eMarketer, spending on digital video advertising is expected to grow to $4.09 in the United States this year, a 41 percent increase from last year. Programmatic advertising, which utilizes software to automate the matching of buyers and sellers, is expected to increase by 73 percent.
"It's a technology that has been adopted quickly because it enables advertisers to reach consumers on a much more targeted basis than display advertising," Fredericksen, vice president of eMarketer, told USA Today.
As a result of AOL's acquisition news, quarterly results showed earnings per share of 35 cents -- two cents higher than analysts had predicted. Overall revenue was up two percent from a year prior. Advertising revenue in the second quarter increased by seven percent to $361.2 million from the previous year, while search revenue was up by eight percent year over year. Global display revenue was also up five percent across AOL sites.
This is a notable turnaround from the second-quarter postings, which saw profits fall by 97 percent from $970.8 million, or $10.17 a share, to $28.5 million, or 35 cents a share. The company attributed that decline to its $1 billion deal to sell and license patents to Microsoft. Internet-access subscription revenue had also fallen by five percent to $166 million from a year prior.
A big portion of AOL's so-called "brand group" also saw losses that resulted from Patch, the ambitious attempt to create a national network of local news sites.