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4 Yahoo M&A Deals With Big Potential

As expected, Yahoo! (YHOO) agreed to purchase video ad network BrightRoll. But the price tag was not cheap, coming to about $640 million. Then again, YHOO stock has been soaring lately, after the company snagged a $6.3 billion windfall from the Alibaba (BABA) IPO. In all, the company has $12 billion in the bank.

yhoo-stock-yahoo-mergers-acquistionsWhile risky, M&A is often critical for the success of tech companies. Just look at Google (GOOG). The company would likely be a shadow of itself but for the acquisition of companies like YouTube, Doubleclick and Android. The same goes for Facebook (FB), which has benefited from the purchases of Instagram and WhatsApp.

OK, so can YHOO CEO Marissa Mayer create the same magic?

Well, the good news is that she has been active with dealmaking. Since taking the helm, she has spent over $2.2 billion on acquisitions — and there are certainly some interesting standouts, which could move the needle.

Here’s a look at the Yahoo deals with the biggest potential.

YHOO Acquisitions — BrightRoll

yhoo-stock-yahoo-mergers-acquistionsThe main drag on YHOO has been the erosion of the display ad business. The grim fact is that the Facebook and Google are taking larger shares of the market.

The BrightRoll deal is important because it will allow YHOO to benefit from the tremendous growth in video ads. Brightroll is the No. 1 operator in a market that is expected to soar 56% to $5.96 billion in the U.S. this year, according to eMarketer.

A key to the company’s success has been its focus on programmatic advertising, which allows for the use of algorithms to maximize the impact of campaigns. The approach is rapidly becoming the preferred one for advertisers.

But what about the monetization for BrightRoll? So far, it is encouraging. For this year, the company is expected to post more than $100 million in revenues and hit profitability.

According to a blog post from Mayer:

“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.”

YHOO Acquisitions — Flurry

yhoo-stock-yahoo-mergers-acquistionsMayer says that YHOO is now a “mobile first” company. No doubt, the Flurry deal is a key part of this vision. The company, which was founded six years ago, is a pioneer of the mobile analytics industry. During this time, Flurry has amassed a valuable database from 1.4 billion smartphones and tablets.

With the data, app companies can better target their ads and gauge the effectivness. The result is often better monetization as well as improved user experiences.

But a major competitive advantage for Flurry is its ecosystem, which has more than 170,000 developers on the platform.

Building mobile ecosystems is definitely a big trend in tech. This was the reason for Facebook’s deal for Parse as well as Twitter’s purchase of Crashlytics.

YHOO Acquisitions — Tumblr

yhoo-stock-yahoo-mergers-acquistionsWhen Yahoo bought Tumblr, the purchase price was $1.1 billion, making it the largest deal for Mayer. All in all, it has provided lots of heft in terms of user momentum. For the past 15 months, the number of users increased 40% to 420 million.

One of the knocks on the deal is monetization — how can Tumblr make money without spamming the site with ads that will drive people away? But Mayer is working hard to crank out the dollars. To this end, she recently launched a program for sponsored posts, which appears to be getting traction.

In fact, she believes Tumblr will book more than $100 million in revenues next year and that EBITDA will be positive. It might seem like a stretch, but it might actually be possible — especially considering Tumblr already has many of the world’s top brands on its platform.

YHOO Acquisitions — Aviate

yhoo-stock-yahoo-mergers-acquistionsMobile search is expected to be a massive industry. However, it will likely be different from the traditional desktop experience.

That’s where Aviate comes in.

The company uses sophisticated Big Data analytics to provide relevant content to mobile users. For example, if you are in the habit of checking stock quotes in the morning, then Aviate will do this for you automatically. There is no need to type in queries, which can be cumbersome on smartphone screens.

According to a blog post from Yahoo’s SVP of Mobile and Emerging Products, Adam Cahan:

“We envision homescreens becoming smarter, more personalized, aware of your context. Aviate helps us bring this vision to life. Aviate auto-categorizes apps on your Android phone and intelligently gathers them into ‘spaces.’ … So whether you’re just waking up, driving, at work, or maybe out for the night, Aviate learns your habits and helps anticipate the information and apps you need – making your phone smarter.”

If Aviate can deliver on its vision of the future, the acquisition could be a huge win for YHOO.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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