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Google agrees to purchase web advertising company in cash

Google, Inc. announced today a definitive agreement to buy DoubleClick, Inc., an online advertising company, for a sum of $3.1 billion in cash.   The web search giant is acquiring the advertising company from San Francisco-based private equity firm, Hellman & Friedman along with JMI Equity and management. 

According to the press release, "the acquisition will combine DoubleClick's expertise in ad management technology for media buyers and sellers with Google's leading advertising platform and publisher monetization services."

Google says the combination of the companies will enhance targeting, serving and analyzing online ads of all types, benefiting consumers by:

  • For users, the combined company will deliver an improved experience on the web, by increasing the relevancy and the quality of the ads they see.
  • For online publishers, the combination provides access to new advertisers, which creates a powerful opportunity to monetize their inventory more efficiently.
  • For agencies and advertisers, Google and DoubleClick will provide an easy and efficient way to manage both search and display ads in one place. They will be able to optimize their ad spending across different online media using a common set of metrics.

"This transaction will strengthen our advertising network by expanding our access to publisher inventory and enabling us to serve the needs of a broader set of advertisers and ad agencies," said Tim Armstrong, Google's President, Advertising and Commerce, North America.

Google and DoubleClick have both approved the transaction, which is expected to close by the end of the year.  Speculation of the sale began several months ago when reports surfaced that a $2 billion dollar deal was in the works.

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Missing details...
By Puddleglum1 on 4/14/2007 1:37:02 PM , Rating: 2
The sales for Double-Click were $150 million last year. So why in the world would they buy it for $3.1 billion?

From the linked article:
The search engine players are vying for one of the major providers of graphical ad serving on the Web, one that did an estimated $150 million in sales in 2006 and firm with roots that stretch to the early days of the Web advertising business.

If Google maintains Double-click's $150,000,000 a year in sales it will take Google over 20 years to pay it off.

What details are we missing here?

RE: Missing details...
By masher2 on 4/14/2007 1:43:37 PM , Rating: 4
> " will take Google over 20 years to pay it off."

Worse than that, as sales don't equal profit.

> "What details are we missing here? "

Growth primarily. Google is assuming an extremely high growth rate in that sales figure. Personally, I think they're still being a bit optimistic as to its net worth, but still, decent growth will cut the payback period dramatically.

RE: Missing details...
By iNGEN on 4/14/2007 4:28:19 PM , Rating: 4
Also do not forget the strategic value of denial. Certain assets have an opportunity cost associated with permitting their acquisition by a competitor. I believe that is the case here. Double-click's preeminence in the digital advertising market makes it one hell of a target for anyone who would wish to cut into Google's marketshare.

Schmidt, Reyes, and Drummond were on-point with this buy. They did not overpay, you'll see.

RE: Missing details...
By masher2 on 4/15/2007 2:22:30 PM , Rating: 2
> "Also do not forget the strategic value of denial"

A good point. Even if Google fails to show a profit directly from the purchase, they've denied their competitors the most obvious means of attacking their market share.

Honestly, had Google purchased this with $3.1B in stock, I would have considered it a very good deal for them. It just shocked me they used cash, rather than making good use of their current share prices.

RE: Missing details...
By gus6464 on 4/14/2007 2:51:17 PM , Rating: 2
That is not really the way it works. There are so many accounting tricks out there that a company can buy another and write off almost the entire cost. Here are some examples:

A company can write-off fines paid on antitrust lawsuits.

Also lets say google decides to sell off doubleclick in a couple of years because it is not profitable, and they sell to another company for 1 billion lets say. The amount that they technically lost which in that case would be 2.1 billionn they can just write off.

And the last one is for the people that think that Sony and MS were really losing money for every console sold, there are two ways to report earning, accounting method of reported earnings and economic method of reported earnings. Most companies nowadays use economic method because it takes into consideration the normal rate of return of the industry, so for example if a company says they made 0 net profit and they use economic method they have already taken into account the normal rate of profits that their specific industry has which is usually around 8%. Normal rate of return is not considered growth but it is still a profit. Also companies can write off most of the money used to develop a product. Of course only huge corporations can do this. If you want to know more you should read up on tax law as there are so many other things that corporations can do in order to minimize loses. And it is all done when it is time to pay taxes.

RE: Missing details...
By masher2 on 4/14/2007 4:11:29 PM , Rating: 3
> "The amount that they technically lost...would be 2.1 billionn they can just write off..."

It doesn't work quite like that. The notion that companies can make money by losing it is fallacious.

If Google writes off a $2.1B charge, they don't pay taxes it on. That would save Google $735M in taxes...but they still lost $1.365B. That assumes they even make that much in profit in the stated year...otherwise, they'll pay even more.

A personal analogy might clear things up. Say you're paying 25% income tax. At work, you break a $100 item, so your boss takes it out of your pay. At the end of the year, you pay taxes on $100 less income, so that fine really only cost you $75. But it still cost you.

> "Also companies can write off most of the money used to develop a product...Of course only huge corporations can do this."

Err, no. Any entity, even a Chapter S or a private individual, can write off costs of doing business....which includes any money spent developing a product.

> "A company can write-off fines paid on antitrust lawsuits."

Of course. You think this shouldn't be the case?

RE: Missing details...
By theapparition on 4/16/2007 8:19:49 AM , Rating: 2
Kramer: "Jerry, all these big companies write things off"
Seinfeld: "You don't even know what a write off is, Do you?"
Kramer: "No, but they do...and they're the ones writing it off"

Funniest exchange ever.

RE: Missing details...
By glennpratt on 4/15/2007 8:42:05 PM , Rating: 2
Gus, this boils down to you not understanding the phrase "write off". Try running your own business for a year and doing your taxes. Write off isn't nearly as fun as it sounds.

RE: Missing details...
By darkfoon on 4/16/2007 4:31:42 AM , Rating: 2
What has double-click been doing since the inception of the company?
Collecting personal data on millions of internet users.
Ever notice how earlier versions of spybot and ad-aware would remove cookies from double-click (do they still do it?)

Practically every site on the net has a double-click cookie on it. (This is an exaggeration, but it held true for a long time)

What google bought for 3.1 billion dollars is very, very useful information about browsing habits collected over a period of time longer than google's own existence (and, arguably, more useful than info collected by google itself)
That is the missing detail.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain
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