What Does SingTel’s Latest US$350 Million Acquisition mean For the Company?

Singapore’s largest telecommunications outfit SingTel (SGX: Z74) would be opening its wallet soon: Just yesterday, the telco announced that it would be acquiring two US-based digital advertising companies for a total sum of US$350 million.

Amobee, the digital arm for SingTel, would be buying Adconion Direct, a cross channel digital advertising company, and Konterra, a digital content intelligence and marketing technology company.

What does this mean for SingTel?

Putting aside any tech-geek-speak, what this means for SingTel is that the company is seeing the digital space as one of the main drivers of growth in the future.

This strategic interest in the digital space cannot happen soon enough. That’s because the reality is that land lines are going extinct with the growing number of mobile users. In addition, traditional revenue streams for telcos, such as charging mobile users for SMS services, are also under threat with the widespread adoption of internet-based messaging systems like Whatsapp and WeChat etc. In fact, as online connectivity improves, especially in emerging markets, conference calls over traditional land lines might even be replaced by Voice over Internet Protocols (VoIP).

When you put all that together, it simply means that SingTel needs to adapt to new technologies or it might face a structural decline in its business.

Why digital advertising?

Two words: Big Business. Digital advertising is one of the largest revenue drivers in the new digital age. Global technology giants such as Google (NASDAQ: GOOG) and Facebook (NASDAQ: FB) are just two examples of multi-billion dollar companies that derive most of their revenue from advertisers.

Foolish Summary

Amobee has huge ambitions: It wants to be the global leader in mobile-led digital advertising. Should it succeed, it might become the main contributor to Singtel’s earnings. But, there’s a long way to go for the division as it recorded a mere S$35 million in revenue for the fourth quarter of SingTel’s last completed financial year. That said, the two new acquisitions would help improve Amobee’s position as Adconion recorded revenue of US$185 million in 2013 while Kontera logged sales of US$26 million.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.