I posted this earlier as Update #3 in my earlier post on MSFT/AQNT, but reposting cause it looks fishy.
What’s that massive volume spike for AQNT at the end of the trading day yesterday? Did someone have a scoop and scoop in before the market close and buy a lot of shares? Average volume for the stock was in the 50,000 shares each hour, then right before market close, a massive, and I mean massive spike to 2.5M shares?
What time was the deal officially announced? Right before market close yesterday? I doubt it, the MSFT press release says May 18th, zat is today, no?
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WatchMojo NewsletterTheStreet.com’s Jim Cramer has a very interesting take on MSFT/AQNT’s deal and the impact thereof on YHOO.
Before reading it I’d say I would have disagreed, but he makes a strong case in his usual understated manner, yeah right:
Cramer said Microsoft’s $6 billion acquisition of aQuantive is “such an overpay” that it unmistakeably sends the signal that Microsoft plans “to consolidate everyone” in the online advertising sector. Cramer said this move may well be “the beginning of the landgrab against Google.
Cramer said he believes Microsoft should buy Yahoo!, given that the Sunnyvale, Calif., Net company “still has fabulous traffic” and that such a deal, however costly, “could at last put Google on the defensive.”
“These guys have been schooled by Google,” Cramer said of Yahoo!. But now that Microsoft is making its intentions clear, “you cannot take anything off the table anymore.”
Cramer said Yahoo! could go to $34 from a recent $29.50 if CEO Terry Semel just quits — let alone any premium tied to any takeover.
This morning I saw YHOO opened some $0.66 higher, then I scrolled down and saw AQNT was up $27. Naturally I knew MSFT had made a move, so I was surprised that YHOO was higher too. Sure, the AQNT deal is a plus for the entire industry, but I would have thought that Wall Street would take it as a definite sign that MSFT would not make a run at AQNT… but indeed, by paying an 85% premium, it sort of suggests that MSFT is going to be getting more, and not less, aggressive.
I own shares in YHOO, AQNT. Here are a few posts pertaining to YHOO I’ve penned in the past:
Here are some previous posts on Yahoo!
:: Will Terry Semel Get the Last Laugh (Again)?
:: Should Yahoo!’s Terry Semel Go?
:: Take Yahoo! Private, Triple Your Money in Four Years?
:: Analysing Google and Yahoo!’s Traffic and Business to Understand the Gap in Market Cap
In 2003, I began to buy shares in DCLK, VCLK, AQNT, Fastclick, etc. [Fastclick was bought by VCLK, eventually].
If it was in online ads, I was long. Over the years, I sold most of these shares because the stocks rose from high single digits to $20 or so. The one company I bought back every single time was AQNT. Today was the jackpot for AQNT founders when MSFT paid $66.50 a share or an 85% premium.
Matt Ingram asks is AQNT worth 2 times DCLK? Yes, I told him. He asked why? Others simply asked who is AQNT? Kevin Kelleher outright thinks MSFT is “bat-shit insane.”
So here’s my answer and my two cents on why AQNT is worth 2 x DCLK, in my humble opinion.
For one, I don’t think DCLK was worth $3.1B, but if DCLK went for $3.1B, then I can see AQNT being worth 2 x that. Yes, crazy talk. Welcome back to the crazy times.
DCLK is a software company whose upside is limited to a) the number of contracts it has secured and b) the number of impressions it serves. Indeed, on Google’s grid, these numbers - particularly b) - can grow quite a bit. But when a lot of people said Google just hit a home run in online advertising by buying DCLK, they were wrong because saying DCLK is an online advertising play is akin to saying MSFT is strong with ad agencies because ad agencies use powerpoint in their client pitches. DCLK sold all of its media assets to L90/MaxOnline when ad rates were low and no one really paid CPM rates, and got into software only.
AQNT, on the other hand, has technology, services and media assets. It is definitely the most diversified online advertising firm. MSFT’s own Don Dodge lists AQNT’s assets, which include:
MSFT now is an advertising company. Well, it’s an advertising and software company. The $6B price was the cost of entry. If it would have bought DCLK, it would have been an even bigger software company. TFSM would have been a second or third tier ad network, but AQNT is a top tier advertising company. I have told everyone and anyone to buy AQNT, as I did here, twice:
:: “AQNT: I told you so. Maybe You Should Listen to Me?” - Feb. 2007
:: “AQNT: I am telling you, Listen To Me! - Nov. 2006
- MSFT can now build world-class sites (AQNT bought Razorfish).
- MSFT can now plan, buy and create ads (AQNT owns Avenue A’s agency, which is the agency for hundreds of F500 advertisers).
- MSFT can now do so much more with email marketing.
- MSFT’s adCenter just became relevant, since Atlas DMT is DCLK on steroids and miles ahead of Dart for Advertisers.
That’s just online, on MSN.com, it can now offer advertisers a bit more than AOL can, and a lot more than Yahoo! can. In other words, this deal will help MSN catch up to Yahoo!
More importantly, MSFT just skimmed the top of the market, and not the bottom where ad networks like TFSM serve. DCLK also is a contract’s out clause away from losing a client. But AQNT is a relationship-based company and even if MSFT owns them, I don’t see many clients taking their business away because AQNT is a best-of-breed online advertising company, and by buying them, so is MSFT now as well.
Admittedly, it’s now an execution and integration risk management case…
Today those who listened made a tidy sum. This is actually very accretive to MSFT despite the $6B sale. Frankly, paying cash was smart because cash does not command much of a multiple, but this deal will command quite a multiple. And AQNT’s business - in 2006 AQNT reported net income of $53.9 million on revenue of $442 million - means that there’s enough there to start moving MSFT’s P/E AND P/S from a software multiple to an ad multiple. I know, MSFT makes $40B in revenue a year, so that’s only 1%, but MSN.com accounts for 1% and this just might be a case where 1+1= a lot more than 2.
This might be as smart as Time Warner’s Advertising.com deal, which today is hailed as genius and we put in our Top 10 Web Deals of All Time here.
UPDATE #1:
Paul Kedrosky points out that another blogger worked out the price paid per impression and this is twice as rich, it should be, because AQNT is no TFSM. AQNT is really the gold standard of online advertising. It is certainly worth $0.02 per impression if others fetched $0.01. But I would like to stress that while GOOG bought DCLK’s ad serving business, which is indeed a commodity and where revenue and price per impression matters, with AQNT, revenue and price per impression matters a lot less. In other words, the value driver for AQNT is not the quantity of advertising impressions but rather, the quality, and MSFT got the best online ad business.
UPDATE #2:
Another thing that was genius about AQNT’s strategy was that it spent 2006 buying up assets and becoming a more global play.
In 2006, AQNT Acquires a bevy of firms including Franchise Gator, a performance media company; Amnesia, an Australian interactive ad firm; Neue Digitale, a German interactive ad firm; and eCrusade, a Hong-Kong interactive ad firm. Aquantive also buys Accipiter Solutions, an ad-serving technology company.
This made AQNT a much sought after asset and trust me, $6B is a lot of money, but when you have $35B in cash, the mere risk of seeing someone else come into your backyard (Seattle, that is) and scoop up the crown jewel is reason enough to pay a hefty premium. In other words, not only were multiples lower last year, but devoid of deals like DCLK, TFSM, no way could have AQNT struck this deal, or anything near it… but biding its time, it scooped up assets, completed the crown, become the jewel itself and today struck gold.
Dang it’s a great time to be a Web entrepreneur…
UPDATE #3:
What’s that massive volume spike for AQNT at the end of the trading day yesterday? Did someone have a scoop and scoop in before the market close and buy a lot of shares? Average volume for the stock was in the 50,000 shares each hour, then right before market close, a massive, and I mean massive spike to 2.5M shares?
I don’t know, but it looks suspicious.
Some figures from TheStreet.com article:
ValueClick rallied mostly on speculation that the aQuantive deal — which featured a stunning 83% premium to Thursday’s prices — makes ValueClick the most likely online media player to be acquired.
But because of the dynamics of the scorching-hot online advertising business, ValueClick stands to be a winner even if a bid doesn’t emerge soon. That’s because online advertisers will value its independence from the likes of Microsoft and Google.
Microsoft’s surprise $66.50-a-share bid for Seattle-based aQuantive, unveiled earlier Friday, extends the merger frenzy that has recently hit the online ad space.
A deal by Microsoft was expected ever since it lost out to Google in a bidding for privately held DoubleClick in April. But the circumstances of the transaction raise some interesting considerations for investors.
First, the size of the deal and the rich valuation Microsoft was willing to pay signal just how competitive the bidding process was. The $6 billion cash transaction values aQuantive at 86 times 2007 consensus estimates, points out S&P analyst Scott Kessler.
Just a sign of the times…
The market seems to think that VLCK will still get bought out, I agree, it’s just a sign of extreme consolidation happening.
CNN’s Paul La Monica has some good ideas, but it’s true that there are some private players as well, so it’s not like VLCK is all alone:
Google (GOOG) started off this merger frenzy in early April when it announced it was buying privately held DoubleClick for $3.1 billion. And Yahoo! (YHOO) followed suit later that month with a deal to purchase the remaining 80 percent in Right Media that it didn’t already own, for $680 million.Sure, maybe a company like Barry Diller’s IAC (IACI), which owns Ask.com, might decide that it now needs to become a player in the online ad network or online ad agency business.
Or maybe another traditional ad agency such as Omnicom (OMC) or Interpublic (IPG) might want to bolster their digital business like WPP has just done. In fact, another big Madison Avenue firm, Publicis (PUB) has also made a notable deal in the online marketing area, agreeing to buy interactive ad agency Digitas late last year.
But as I pointed out earlier this month, there are also several privately held online marketing firms, companies like Tribal Fusion and Burst Media, that could also be attractive, and would probably cost a lot less than ValueClick. Another hot privately held online ad company, Gorilla Nation, announced Friday that it was receiving more than $50 million in financing from private equity firm Great Hill Partners.
Crazy times. Crazy freaking times. Then again, the action is moving online, and no one wants to be left out.
The best business, career move I ever made was leaving my old company. We got that.
MSFT buys aQuantive for $6 Billion.
The best investing move ever, not selling my holdings in aQuantive yesterday. This is a true story: yesterday my holdings in AQNT crossed the 50% gain threshold, and having become more disciplined, I logged in a couple of times into my online trading account and considered selling my shares. I’ve bought, sold, bought, sold and bought this stock again many times, I’ve written its praises on this blog quite a bit. Having worked in ad sales, as a VP of sales for a publisher, I thought it was the best company in the space. Naturally when Google bought Doubleclick for $3.1B, I knew the timing would come when someone would snatch it up.
But yesterday as WPP bought 24/7 Realmedia, I thought, maybe MSFT will balk at AQNT’s valuation - $2.6B as of yesterday - and make a run for Valueclick. Or, maybe it won’t move. Last week AQNT rose $3 and I thought, maybe I should just lock in my 50% gains and move on.
Today I wake up, and AQNT is up $27! I knew it was a deal. And only MSFT could have made such a move.
Indeed, MSFT paid over 2 times yesterday’s price, naturally there were many buyers. Who else?
YHOO had bought Right Media. Google had bought AQNT. Maybe it was AOL? Maybe it was InterActive Corp.
Who cares, today I am thankful I didn’t sell, that’s all I know.
Is this deal good for MSFT? Yes, MSFT-bashers should now recognize that MSFT is definitely a strong player in online advertising. This deal will not only help AQNT in a few ways, it might also hurt in areas because not everyone will want to have their advertising “run through MSFT.” But time will tell if that will pan out because AQNT is good at what it does. Of course, the best part of the deal: AQNT and MSFT are both based in Seattle. This is a major plus but it does suggest that MSFT plans a major integration, though that remains to be seen.
Regardless it will help MSFT in two ways: MSN/Live.com just got a shot in the arm, and like Google, MSFT is not making a cut off every dollar spent - or nearly every dollar spent - in one way or another away from MSN properties.
More analysis and thoughts to come. Plenty of 2 cents online.
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