Google-DoubleClick Deal Makes aQuantive More Attractive 7 comments
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Banc of America Securities analyst Jonathan A. Jacoby said the deal means aQuantive’s digital marketing business, Atlas, is worth more than people thought. Jacoby said he’d valued Atlas at 14 to 16 times the segment’s earnings before interest, taxes, depreciation and amortization.
With Google paying 25 to 31 times earnings before interest, depreciation and amortization (ebitda) for DoubleClick, Jacoby said Atlas could be worth anywhere from $1.3 billion to $1.6 billion. That would add $5 to $8 to aQuantive’s share price, he said.
Piper Jaffray analyst Aaron Kessler said it’s a good sign the price tag was higher than the $2 billion initially reported in the Wall Street Journal last month. It indicates there was probably a bidding war, he said. AQuantive’s Atlas unit, now the biggest player in the digital marketing game still on the market, could be of interest to a big media or technology company, he said.
Based in Seattle, aQuantive makes software allowing marketers to target advertising campaigns on Web sites. The company reported $442.2 million in sales last year.
Kessler hiked his price target from $36 to $38, which is a third higher than the closing trade of $28.52 on the Nasdaq Stock Market on Friday. Analysts from UBS, CIBC, JPMorgan and Merriman Curhan Ford upgraded aQuantive’s stock on Monday.
Shares of aQuantive climbed $3.38, or 11.9 percent, to $31.90 in premarket trading Monday. AQuantive’s stock hasn’t traded that high since before the tech bubble burst. The stock’s current 52-week high, reached last week, is $29.37.
I’ve always said, nothing against analysts, but they’re reactive, after-something-happens prognosticators. If you want to get a sense of what’s what, ask folks who work in the industry, here’s one example of that.
But here’s something else that baffles me: aQuantive still operates in many of the segments that DoubleClick got out of.
DoubleClick is a software entity now, aQuantive is a technology and media company, and frankly, it is far better positioned to benefit from the rise of display advertising than Doubleclick ever was since it got out of the media business when it sold that unit to MaxOnline.
In other words, saying that DoubleClick is in the media business is akin to saying that Microsoft (MSFT) is really in with ad agencies because ad agencies use Powerpoint in their client pitches. That’s nonsense… but few people are actually calling it like it is.
In fact, a few analysts are rushing to put their seal of approval on the Goog/DCLK deal without even knowing who does what.
Forrester analyst Charlene Li described the deal as a must-have for Google. “It’s a lot of money, but who cares? This is one of the things they had to buy,” she says. “They were not making any headway” on display ads.
Wow. I guess the bottom line, is that whether you are Google or a small investor: buyer beware!
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This article has 7 comments:
In a market that doesn't like anyone's stock (all cash deals signal long term weakness) I, personally, don't see the valuation logic here. Google clearly isn't concerned with making investments in companies with an eye toward long term profit on that investment. These are strategic, yes, in a game of "keep away" so I don't see how such a game really translates to valuation in the case of Atlas -- unless the market is filled with GOOGs. In some cases it's "dumb money" but now a days we don't see much of that.
Also, don't forget that AQNT and DCLK have services divisions that are likely not factoring heavily into (revs around $80-150 million) valuation but they do factor in long term.
GOOG will begin to resemble aQuantive with a twist by carefully balance self-service ad management tools (aimed at advertisers direct AND agencies) with high end marketing services (via its Performics unit which looks a lot like AQNT’s AvenueA). This serves all advertisers: those who value self-service scale and those who need full blown agency services.
As well, GOOG’s display business is poised to take off as the company rolls out its new Doubleclick network in a highly scalable, self-service manner among existing advertisers. Competition for ads will increase and the offering pairs nicely with GOOG’s move into CPA. This will spur the company to offer all payment options (CPM, CPC, CPA) across all display and text ad networks.
Ultimately, GOOG isn't interested in competing with behavioral solutions like Tacoda et al... they're more interested in the same play at social media (user generated content) that YHOO is chasing. Their recent announcement suggesting that <strong>inline text ads </strong>is a next step for CPA clearly indicates this. It's all about monetizing inventory that's exploding. Lots going on here concurrently as I see it.
Re: "This serves all advertisers: those who value self-service scale and those who need full blown agency services."
The one area where Google might hit a snag is that most agencies view Google as a threat... Google is hoping that F500 advertisers and ad agencies turn to it, but most media planners and buyers want to shift their money across many media suppliers while relying on a centralized technology supplier.
DCLK or AQNT's Atlas is the tech supplier... advertisers choose on or the other granted, but on the media end of things, I do not think that advertisers will welcome Google as a trusted partner.
Agencies get 5% planning, 5% buying and 5% creative, Google effectively wants to take away the first 2 5% fees.
Then there's the publisher flight risk, MTV for example uses DCLK. Will they do that for much longer?
Lastly, DCLK's inventory does not in any way give advertisers access to the best, premium real estate.
Publishers control that directly... and since they will be more reluctant to use DCLK's software (and give up valuable data to Goog) and advertisers will be reluctant to trust Goog, I see a lot of risk here.
This was a defensive move against MSFT camouflaged as a synergistic one.
Of course, long term, what will pan out will be a combination of the things you say, I say, others say... but for now, that's my take!
Thanks.
Thanks for the reply.
<strong>Google is hoping that F500 advertisers and ad agencies turn to it, but most media planners and buyers want to shift their money across many media suppliers while relying on a centralized technology supplier.</strong&g...
Precisely, yes. Yet I do believe it's possible for GOOG to offer agencies themselves a set of automation-focused tools while concurrently offering them to a totally different set of (smaller) advertisers. I don't much buy into the notion that GOOG will, via the DCLK deal, control so many page views that it will disrupt media buyers. It will simply make their jobs easier operationally. I don't see GOOG's move as one that would result in large advertisers taking media buying in house over it. If they did... well... that would be just fine by me :)
I think they want to have everything fragmented, as you suggest, based on their need to exist. That existence is being challenged by GOOG, yes.
<strong>DCLK or AQNT's Atlas is the tech supplier... advertisers choose on or the other granted, but on the media end of things, I do not think that advertisers will welcome Google as a trusted partner.</strong>...
Why? Respectfully, you're suggesting that a company who has managed to offer zero transparency and put the click fraud issue to bed is not lining up to earn trust? Candidly, who needs trust when advertisers can achieve this kind of scale? I'm curious as to your thinking here. Believe me, I know some advertisers who don't like the fact that the same company who measures ad ROI and sells the ads (and won't do biz with GOOG over it) but I know even more who do not, and likely will not, consider such things when slapping down their charge card for AdWords.
<strong>Agencies get 5% planning, 5% buying and 5% creative, Google effectively wants to take away the first 2 5% fees. </strong>
Sure... but I don't see it this way. As I stated, GOOG isn't interested, IMO, in competing for airtime among major publishers and advertisers (who are all wrapped up in behavioral solutions like Tacoda). They're more interested in the same play at social media monetization. Think AdSense on steriods. As Publishing2.0's Scott Karp put it recently (when considering what inline text ads inside social media/blogs could do for GOOG):
“With cost-per-click ads, spammers create bogus pages where confused consumers click on ads in an effort to escape. But with CPA ads, clicking is not enough. The game is now to manipulate consumers not only to click, but to take some further action. And I don’t use the word ‘manipulate’ arbitrarily. This is about turning the web into one big pile of junk mail, aimed at getting you to sign up, buy, or commit to something that you hadn’t necessarily wanted.”
I see GOOG doing things to remove friction, not aiming at taking things away from people. Why can't media buyers still buy media from 5 sources now rather than 6? I'm arbitrarily picking numbers to demonstrate my point but I think you may be over-reaching here.
<strong>
Then there's the publisher flight risk, MTV for example uses DCLK. Will they do that for much longer?</strong>
Maybe I'm being dense here but I don't understand why MTV would leave. <strong>
Lastly, DCLK's inventory does not in any way give advertisers access to the best, premium real estate.</strong>
No but I don't think GOOG cares about that. Does GOOG have prime inventory in its AdSense network? Nope. Any of its syndication networks? No again. Does it need to improve this? Yes -- and a mid-tier display network like DCLK seems just fine.
Again, where does GOOG make its money? In my experience/analysis, it's among the smaller to mid-sized advertisers. Of course, we cannot ignore segments like domaining which power a sizable segment of GOOG, YHOO's revenues -- all based on inventory that mainstream analysts (I'll go as far as saying) don't even realize exists!
<strong>
Publishers control that directly... and since they will be more reluctant to use DCLK's software (and give up valuable data to Goog) and advertisers will be reluctant to trust Goog, I see a lot of risk here.</strong>
Fully understood but, again, I don't see GOOG as <strong>doing anything </strong>that suggests they give a hoot about large publishers or advertisers... anymore than they care to cater to smaller to mid-tiers.
I posted this at your 4/3 entry and will do so here as well as the comments relate directly...
Respectfully, your suggestion that agencies will drop DCLK's tool set based on automation fears seems extreme. As well, aQuantive has proven that a company can successfully navigate these waters -- offering agencies a tool set (Atlas), distribution (DrivePM) while directly competing with them (AvenueA). Why can't big G do the same? I guess time will tell!
I worked, for example, as VP of Sales for a midtier online publisher who has worked with DCLK, AQNT, GOOG in many capacities, but ultimately, my experiences shape my view and my gut... I'd be curious to know your background, mainly because people in the industry tend to have the best ideas on where the industry might go.
Just one thing:
"Maybe I'm being dense here but I don't understand why MTV would leave."
Viacom is suing GOOG's YouTube for $1B. VIA just chose YHOO for a revenue deal. While CBS is working with GOOG, VIA is not... so I am guesstimating that to spite GOO, Redstone might yank that acct.
Thanks and yes... fully agree and it's helpful to know your background. I see where you're coming from better now. I entered "online" as a management consultant but cut my teeth as a co-founder and VP, Sales & Marketing at what is now Performics... DCLK's marketing services division. That only lasted a few years and I'm back as a hired gun again now (consultant).
Aaaah. I knew there was something to your MTV comment. Thanks. Perspective is EVERYTHING!
Agree with your point regarding DFP publishers. Regarding ad agencies ... I really don't see why agencies are so scared of Google. Hell running, monitoring and reporting on a Google buy is much more complicated than say buying a page in People magazine... you think advertisers want to deal w/ all that mess? Thats why the big advertiser hire agencies in teh first place. The more media venhicles focus on ROI and stats and metrics etc, the more value an agency brings as their partner to sort though it all. Yes buyers want to spread money around to a lot of different sites, both because it broadens their reach and also because it gives them some leverage against the sellers to have alternatives... but on the flip side trying to manage a 100 site buy manually is nearly impossible without a system to help streamline. Hence the value of Doubleclick in the first place. So there is a huge convenience factor as well... would you dare send out RFPs to tens of thousands of websites? no Way! there is a ton of value in having someone aggregate all the best into a single ad sales contact, technology, reporting source. This is the value, that along w/ tying search query values into the DART ad call, that Google hopes to unlock.
Could you elaborate any more on your comments regarding Tacoda and social networking play? I don't think they care the slightest about Tacoda, but think the model they could pursue will be similar in that they look to move low valued inventory to a higher valued use (for all types of willing publishers) by looking up users recent Google search query keywords and matching those to users they see on the DFP network (for those publishers that opt into the program of course) and then serving them a display ad from the same folks that bought the search key word... as an expanded "display" option for those currently Google search advertisers... now they just need the online banner equivalent of a spot runner.
Mostly agree on first set of comments you offer. Here's the BIG trend that nobody seems to be paying much attention to (and perhaps?? what has agencies worried):
<i>Targeting is quickly becoming part of the "Advertising OS" of the Web and <strong>control is weighted heavily toward the user</strong>. </i>
Google calls it "personalizing" users' search experience.
Call it what you like, search itself is quickly becoming a realm that search engines (GOOG) control, not "Web page optimizers" or paid campaign optimizers. THAT is what's got everyone freaking out IMO. There's MORE "black box" control lately, not less. Google says "write a good ad... build a good page" and replies to "how?" with "like this, basically, and leave the rest to us."
S-C-A-L-E. Simplicity. If I'm an agency I'm concerned.
Re: Tacoda/behavioral targeting via a network... we're totally on the same page. Yahoo is already doing this across its network (just started -- or so they say).