yahoo stock yhoo earnings report call q2 2nd second quarter 2014 2q 2q14
Yahoo CEO Marissa Mayer is pictured on stage. Reuters

Yahoo Inc. announced Tuesday it will acquire BrightRoll Inc. for $640 million in cash, as the once-dominant portal looks to video advertising to revive its slumping ad revenues by buying the video ad exchange company. The acquisition will create the largest digital video advertising platform in the United States by combining “Yahoo’s premium desktop and mobile video advertising inventory with BrightRoll’s programmatic video platform and publisher relationships to bring substantial value to advertisers on both platforms,” according to a press release from Yahoo on Tuesday.

Privately owned BrightRoll, founded in 2006, operates a Nasdaq-like exchange for video advertising where advertisers can bid on audiences in real time. The company is fast-growing and is expected to have revenues in excess of $100 million in 2014.

The deal instantly gives Yahoo scale in video advertising, an area of high growth, but also a play on TV advertising dollars, which are migrating to online platforms. Yahoo said it expects the acquisition of BrightRoll to enhance its EBITDA and accelerate the growth of both companies.

“Video, along with mobile, social, and native, is driving a surge in digital advertising. Here at Yahoo, video is one of the largest growth opportunities, and BrightRoll is a terrific, strategic and financially compelling fit for our video advertising business,” said Marissa Mayer, Yahoo CEO.

Yahoo's online display ad business, the equivalent of magazine ads in a digital age, has been on a downward spiral for years. In the third quarter display ad revenue shrank 5 percent. While it sold 24 percent more ads, it generated 5 percent less revenue than Q3 last year, coming in at $447 million. A shrinkage in Yahoo's ad business is ominous, as it's not really a technology nor a media business -- ads are its basic trade. Selling more ads while getting less revenue out of them is bad news. Yahoo is looking to reverse this by acquiring BrightRoll.

The closing of the acquisition is expected in Q1 2015 and the transaction is subject to customary closing conditions, according to the press release.

Yahoo shares closed at $49.05 on the Nasdaq Tuesday, near their 52-week high.