Video search engine expects operating profit to beat market expectations.
Video search engine blinkx PLC said Friday it has agreed to buy Internet advertising firm Burst Media Corp. for $30 million in cash and shares, in a deal expected to significantly expand Blinkx's online audience.
Burst sells advertising space on a wide range of websites, and reaches an online audience of around 130 million unique users. By offering video to Burst's partners, blinkx hopes to create an online video advertising network with the scale to compete with television in attracting buyers.
"When we talk to TV buyers they are increasingly confident about online advertising, but the one fly in the ointment is the lack of audience scale," blinkx Chief Executive Suranga Chandratillake told Dow Jones Newswires.
Using its video search technology and its library of 35 million hours of video, blinkx hopes to create personalized, online television that is watched by hundreds of millions of users.
Burst's existing display advertising business should add around $33 million of annual revenue, and the acquisition should boost earnings this financial year, Chandratillake said.
In a separate announcement, the company said it expects operating profit for the year ended March 31 to come in above market expectations, which it put at $6.7 million. Revenue should be above $65 million, up 90% on the previous year.
Under the deal, Burst shareholders will receive $0.41 in either cash or blinkx shares for each share they own. blinkx doesn't expect the cash it pays to exceed $4.5 million, it said.
Analysts at Citi said although the premium paid for Burst--more than four times Thursday's closing price--looks hefty, the "opportunistic" swoop to acquire the company when it was running out of cash makes the deal look cheap compared with others in the industry.
"We think the really exciting opportunity is if blinkx can use Burst's network to start selling video advertising time, given a roughly 20 times differential in ad pricing between online video ads and traditional banners," Citi said in a note.
Following the announcement, Burst shares climbed almost five times higher. At 1046 GMT they were trading at 23.75 pence, valuing the company at roughly GBP17 million, slightly below the GBP18.5 million sterling value of the acquisition.
blinkx shares were trading 8.4% higher at 120 pence, outperforming a 0.3% rise in the Alternative Investment Market.