Advertising is about to become a big business segment for Adobe Systems (NASDAQ: ADBE). Early Thursday, the company announced plans to acquired programmatic advertising specialist TubeMogul (NASDAQ: TUBE) for $540 million, or $14 a share, in an all-cash deal.
“Whether it’s episodic TV, indie films or Hollywood blockbusters, video consumption is exploding across every device and brands are following those eyeballs,” Brad Rencher, Adobe’s executive vice president and general manager of digital marketing, said in a press release. “With the acquisition of TubeMogul, Adobe will give customers a ‘one-stop shop’ for video advertising, providing even more strategic value for our Adobe Marketing Cloud customers.”
Apparently, the pitch is to get brands to pay up for Premiere Pro and other advanced elements of what Adobe calls its “Creative Cloud” by including ad placement as an available service. Over time, creative directors could script, shoot, edit, and publish advertising creative to the right network at the right price point using TubeMogul’s algorithms.
For its part, TubeMogul gets taken out at an 82% premium to its most recent closing price, double its IPO price, and a 21.8% gain from its first-day close. Early investors in the company can walk away with a sizable win. Others who bought closer to TubeMogul’s December 2014 peak of $22.05 a share have to hope a competitive bid is still out there, though that seems unlikely.
Why? For a company that’s arguably leading the white-hot ad-tech space, TubeMogul isn’t growing very fast. Revenue growth, in particular, has slowed in each of the past four quarters and was down to just 20.6% year over year in the latest quarter versus 69.5% last year at this time. Gross margin is also down and returns on capital are worsening. If there’s good news here, it’s that TubeMogul has eked out $1.8 million in cash flow from operations over the trailing 12 months after years of burning through its available capital.
Still, to look at the remainder of its financial statistics and its rapidly declining growth, it’s probably fair to say that Adobe isn’t buying TubeMogul for what it is, but for what its technology might do to help sell the Creative Cloud.
A secret billion-dollar stock opportunity
The world’s biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn’t miss a beat: There’s a small company that’s powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Tim Beyers has no position in any stocks mentioned.
{loadposition user99}