SingTel – BT

SingTel bets US$321m on mobile ads

In the battle against the disruptive influence of smartphones on voice call and SMS revenues, SingTel is fighting back with a US$321 million acquisition of Silicon Valley mobile advertising firm Amobee.

As part of its virgin investment in a digital services firm, SingTel will trade its customer data for Amobee’s mobile ad savvy as it tries to crack mobile marketing in emerging markets such as India and Indonesia. These markets account for a growing portion of SingTel’s 434 million customers.

The acquisition of the 100 per cent stake in Amobee will be an all-cash one and will give SingTel access to more refined marketing tools like targeted deals and coupons for its subscribers. The deal is slated to be completed before June.

At the same time, SingTel will use its position as a telco to fill in the blanks in demographic information that have frustrated marketers thus far. ‘There’s a wealth of data that’s available – age, gender, socio-economic status . . . handset model, real-time location – gathered with customers’ permission,’ said Allen Lew, SingTel’s newly designated head of digital business.

While the US$321 million investment works out to a price-to-net-asset-value ratio of 535 based on Amobee’s net asset value (NAV) of US$0.6 million, SingTel Group CEO Chua Sock Koong said that the telco had considered the discounted cash flow (DCF) valuation parameters of other deals and that its valuation of Amobee was ‘in line with market parameters’.

A report by DMG & Partners Research yesterday said that the SingTel- Amobee valuations implied a price-to-sales ratio of 11 – below similar deals’ price- to-sale ratios ranging from 13 to 30.

In previous years, Google and Apple have been involved in large-scale buyouts of mobile advertising firms – AdMob and Quattro Wireless – respectively. Google paid US$750 million for AdMob while Apple reportedly paid US$275 million for Quattro Wireless.

In that respect, the DMG report deemed the Amobee valuation ‘fair’ and placed it on the ‘low end of similar benchmarks’.

While the largest spate of mobile ad firm buyouts happened in 2007, heavyweight interest in mobile advertising appears set to continue into the year, with Facebook courting mobile ads and Starbucks working with mobile ad firm Celtra on a campaign.

SingTel’s designs on this space are similarly ambitious. The telco said yesterday that it wanted to not only be the top mobile ad firm in the region but to also rank among the top three in the world.

If it achieves this, it will have leapt across a rather large distance in the mobile advertising landscape, considering its starting point.

Mr Lew said that up till now, ‘most of (SingTel’s) efforts have been SMS- and MMS-based. We have not participated in the agency aspect of mobile advertising or creative design.’

The DMG report also said the research house viewed the deal ‘as positive for SingTel given Amobee’s expansive platform covering the entire value chain of mobile advertising’.

‘This will allow the group to capitalise on and further monetise mobile advertising across the (operating companies),’ it added.

DBS Group Research’s Sachin Mittal noted, however, that ‘mobile advertising is a promising area but selling solutions is something new for SingTel’.

In the mobile ad field, the stakes appear to get larger every year. Gartner data cited by SingTel showed that global revenue from mobile ads is set to grow from US$6.8 billion this year to US$20.6 billion in 2015 – of which Asia Pacific is expected to account for 35 per cent.

This deal was announced alongside a sweeping organisation reshuffle that points to a growing focus on SingTel’s digital interests.

From April 1, SingTel Group will have three main business units: consumer, digital services, and information technology for enterprises.

Mr Lew will serve as CEO of the group digital business, while Paul O’Sullivan – who heads up the Optus business – will be CEO of the group consumer end.

The search for someone to lead its IT segment for enterprises, however, continues, with Mr Lew standing in meanwhile.

‘This reflects the focus on selling innovative solutions rather than being an operator in an era where voice is being commoditised and the value is in selling solutions,’ DBS’s Mr Mittal commented in his note yesterday.

The group’s counter closed two cents lower at $3.13 in trading yesterday.