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Yahoo Places $28 Million Bet On Online Advertising

May 19, 2011

In a bid to revive lagging ad revenues, Yahoo has purchased 5to1 Holding Corp., an online advertising service.

The $28 million deal provides Yahoo with increased options in placing online ads for companies looking to promote their brands.

5to1 works with about 20 websites to sell unused advertising space, however those efforts have failed to catch on for 5to1, which has been losing money since its 2008 inception.

The Santa Monica, California-based company has, according to a filing with the Securities and Exchange Commission, lost nearly $9 million on revenue of less than $1 million. The same filing indicated that 5to1 would need to raise money to keep operating next year.

Yahoo’s earnings have risen recently, but its ad revenue hasn’t kept up with the rest of the internet. While total ad sales on the internet climbed 15 percent last year, Yahoo’s ad revenue increased by just 1 percent.

Yahoo’s stock price has been taking the brunt of the damage, closing at $15.96 on Wednesday. Microsoft offered to purchase Yahoo 3 years ago for $33 a share.

Shares for 5to1, which trade in the over the counter market, stood at $1.01 before the deal was announced Wednesday, giving 5to1 a market value of $36 million based on the company’s outstanding shares as of May 10.

That means Yahoo is buying 5to1 at a roughly 20 percent discount from 5to1′s market value.

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