Who says Mr. Softy has gone soft? Today, Microsoft
The $6 billion deal comes just 24 hours after WPP Group's
A $35 billion billy club
But you just knew that wouldn't last. Here's how I put it when I covered aQuantive's impressive first-quarter report:
Here are the facts: aQuantive's Web development business is thriving. So is its ad business. With Google's DoubleClick gambit, very large and well-funded digital advertising wannabes have a good reason to keep it that way.
Remind me to give my crystal ball a hug.
Not that I made a difficult call. aQuantive buyout speculation has been on the rise since DoubleClick got Googled. Briefing.com joined the party on Tuesday with this impressive thesis.
Click shy? Allow me to summarize: Digital advertising is a booming business that is attractive to those with deep pockets; aQuantive, which is on track to serve 40% of this year's inventory of online ads, is a clear leader.
Microsoft, obviously, couldn't agree more. To quote CEO Steve Ballmer from the press release announcing the deal: "Microsoft is intensely committed to creating a thriving advertising business".
So is everyone, Steve. The difference here is that you have $35 billion in the bank. You can become competitive overnight.
Back off, Big Goo
Which he did, booking the largest deal in Microsoft's history. Which, in turn, has pundits pondering whether Mr. Softy overpaid, and how it will digest the deal.
I understand the skepticism. At $66.50 a stub, Microsoft is acquiring aQuantive for -- get this -- 88 times its projected 2007 per-share income. And this is for an agency that's expected to grow earnings by only 23% annually over the next five years. Talk about an absurd premium.
Or is it? DoubleClick was thought to have produced no more than $200 million in revenue when Microsoft reportedly bid $2 billion for the business. Do the math; that's a multiple to sales of 10 times. Google, by bidding $3.1 billion, committed to paying at least $15.50 for each dollar of DoubleClick sales.
aQuantive, meanwhile, has booked $492.6 million in trailing 12 month revenue. Mr. Softy is buying each dollar of those sales for $12 apiece. No, I wouldn't call that cheap, but I also wouldn't say Google got the better deal. By the numbers, it didn't.
Ads, ads everywhere!
But this deal isn't really about the numbers. It's not even really about Google. It's about giving Microsoft a chance to monetize its digital properties.
Consider the Xbox. It can play DVDs. It can also download movies. Name a form of digital media and I'll bet you, if not now then soon, that the Xbox will have a way to play it back. That, Fool, makes it a very appealing platform for advertising. Just like the TiVo
Microsoft is also a video game publisher, a content aggregator (Live.com), a search engine (MSN), and a digital landlord (MSN again). Oh, and it makes the most widely used software for 90% of the world's personal computers. Think any of these platforms won't host ads? Think again.
The right question to ask, therefore, isn't how will Microsoft integrate aQuantive. Or whether it overpaid. Nope, the right question to ask is where won't Microsoft use aQuantive. From what I can tell, there aren't many places for its software to hide.
Expect the bits and bytes to comply. And expect Microsoft to put its $6 billion to good use. Indeed, when it comes to online advertising, Mr. Softy just got a lot harder.
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Microsoft is an Inside Value pick. TiVo is a Stock Advisor selection.
Fool contributor Tim Beyers, who is ranked 6,759 out of more than 28,900 in Motley Fool CAPS investor intelligence database, is a sucker for growth stocks and a regular contributor to Rule Breakers. Tim owned shares of aQuantive at the time of publication. His portfolio holdings can be found at Tim's Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy just did a buyout jig to celebrate the good news for aQuantive shareholders.