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Computer software giant Adobe Systems Incorporated (ADBE - Free Report) is acquiring TubeMogul (TUBE - Free Report) a video advertising platform for $540 million, net of cash and debt.

TubeMogul shares increased a massive 81.75% on Thursday in response to the news.  Adobe shares, on the other hand, fell 3.63%. Per the terms of the deal, Adobe will acquire all of Tubemogul’s outstanding common stock for $14 per share, two times the company’s 2014 initial public offering (IPO) price of $7.

Emeryville, CA based TubeMogul is a leading provider of video demand-side platform (DSP) that enables advertisers to plan, buy and measure video ads across mobile, desktops, television and streaming devices.

TubeMogul will merge with Adobe’s Digital Marketing business with Brett Wilson continuing as its CEO. The deal is likely to close in the first quarter of Adobe’s fiscal 2017.

ADOBE SYSTEMS Price

What Prompted the Acquisition?

With the deal, the duo looks to create the first end-to-end independent advertising and data management solution compatible with digital formats. Customers will get access to first-party data and measurement capacities leveraging on the combination of Adobe Marketing Cloud and TubeMogul’s video advertising platform.

 “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,” stated Brad Rencher, Adobe executive vice president and general manager of its digital marketing division.

As far as the financial impact is concerned, Adobe expects the acquisition to be neutral to its non-GAAP earnings in fiscal 2017. The company currently cannot predict the impact on its future GAAP earnings as certain acquisition-related cost estimates and purchase price accounting are absent.

Adobe Building Capabilities in Digital Marketing

Adobe entered the digital marketing space with the acquisition of Omniture. This is an area where corporate spending is on the rise.  This can be attributed to the increasing adoption of cloud computing, social media and mobile devices, as well as the emergence of big data analytics.

Adobe has been building its position in the area with successive acquisitions (Neolane, Omniture, Day Software, Demdose, Auditude, Livefyre and Efficient Frontier) that enable it to provide analytics, experience management, targeting, social relevance and spend optimization.

We believe that TubeMogul acquisition will help Adobe further strengthen its foothold in the digital marketing space.  The deal will enable advertisers to capitalize on online video campaigns, thereby expanding Adobe’s offerings. Moreover, with this acquisition, Adobe can further distinguish its Marketing Cloud offering from the likes of Salesforce (CRM - Free Report) , IBM, Oracle (ORCL - Free Report) , and Pardot.

Currently Adobe is a Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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