Is Interclick Yahoo!’S Remnant Revenue Savior?


ADOTAS – Somehow, Yahoo!’s third-quarter earnings proved to be worse than its second quarter earnings. The latter report raised a lot of eyebrows as U.S. display revenue — seemingly the only solid revenue performer, with the company’s search revenue still in freefall — took a major dive, attributed to a poorly implemented sales team reorganization that witnessed more turnover than expected. But by the time of the earnings, the situation had been taken care of — fresh bodies were manning the phones and keeping premium inventory off of the Right Media Exchange (which experienced some unexpected turnover itself last quarter).
Well, come third-quarter report time, CFO and interim CEO Tim Morse — on the job for a few weeks after the unceremonial firing of Carol Bartz — had a great deal of tap dancing to do. In general, revenue was down 5% year over year ex-TAC (24% GAAP-adjusted) and net earnings dropped 26% YOY, but now display revenue had actually slipped. See, in the second quarter, global display revenue was still up year over year (5% ex-TAC); in third quarter, display revenue ex-TAC was $449 million, down from $448 million during Q3 2010 — a 5% drop YOY. GAAP display revenue was $502 million, a decrease of 2% versus the $514 million reported in the third quarter of 2010.

Morse played the dip off as “flat,” but it takes a blind man not to see an inflection point. With the premium inventory sales team running at full steam, Yahoo! cited the culprit this time around as remnant inventory. Morse said straight up, premium (guaranteed) display revenue grew while non-premium (nonguaranteed) revenue display declined. It appeared that CPMs for non-premium inventory sold on RMX had been sinking like the Titanic, but Morse suggested that an in-house tech upgrade would turn the decline around. Kinda weird considering that the department has been running around headless for a few weeks.

Morse’s statement is only one reason why today’s announcement that Yahoo! is buying audience targeting platform Interclick for $270 million ($9 a share, a 22% premium to the price of the stock at Monday’s close) is a bit of a surprise. The others are a bit more obvious — Yahoo! doesn’t have a permanent CEO and is undergoing a “strategic review,” while cofounder and ex-CEO Jerry Yang is reportedly seeking funds to take the company private, or a merger with fellow beleaguered portal AOL is being considered. Seems like a weird time to lay down $270 million for a tech purchase.

But it’s definitely aimed at sealing the leak in Yahoo!’s remnant display revenue and getting more money out of the vast amount of remnant inventory on its content network, which is only growing through deals like the one recently signed with ABC News. In addition, Interclick features its own network of publishers, and a sales team that will be moving over.

It’s the audience segmentation and targeting technology that really has Yahoo! licking its chops. Interclick will be bringing over its Open Segment Manager audience targeting platform as well as inventory optimization technology for boosting remnant inventory CPMs via audience segmentation with smarter data insight. Earlier this year Interclick introduced a video ad platform designed to illuminate the correlations between display and video advertising campaigns. Also, the company recently released the self-service Genome platform for audience targeting and campaign planning.

A source told The Wall Street Journal that remnant ad inventory is a $600 million a year business — is that it? Really? In theory — with a solid integration, which is no guarantee considering Yahoo!’s track record — the acquisition could not only stem the display revenue decline but seriously turn it around, as Interclick sounds like the kind of advanced data-driven targeting platform Yahoo! was lacking to clean up on its remnant inventory.

And Interclick kinda needed a hand too — the stock hadn’t rebounded to it’s all time-high of $8.94 (just short of the $9 offer price) since slipping during the big stock market selloff this summer. The company was reported to pull in $53 million in revenue this year.

“Having worked closely with Yahoo! for the past few years, we have a deep appreciation of the quality of the inventory that Yahoo! brings to market,” said Michael Katz, founder and CEO of Interclick. ”The combination of Yahoo!’s premium data and inventory with our platforms will create tremendous value for clients.”

So the real question is, what does this mean for RMX? I imagine we’ll start seeing a lot less Yahoo! content network inventory on it, but the will the exchange finally become useless?

What's your opinion?