"But [Facebook's video ads] don't look like a brand performance play: The ads themselves appear pretty displaycentric and they're embedded in an environment where the consumer is not likely to be watching video," Day said. "It's probably more impactful to players for in-banner space than us."
Tremor Earnings Highlights
Some analysts have cheered the video ad network's double-digit revenues, the shrinking of its net losses and the possibility that it might reach profitability by the end of the year.
But the market sent Tremor's stock price down to $7.94 at Thursday's close – a not insignificant blow considering the company's shares have fallen nearly 20% since the deal was priced about two months ago. By mid-day Friday, as news of its positive earnings spread, perhaps, Tremor's stock was up to $8.00.
"At $7.94 stock price, we believe the market may be mis-assessing Tremor's risk/reward," said Brian Fitzgerald, a senior Jefferies analyst. "Online video is a big growth area, and Tremor is one of the better positioned in the space, particularly because they're focused on premium video and exclusive relationships with publishers. Plus, the executives running the company are experienced with managing public companies before. They just need to continue to tell their story."
From In-Banner To In-Stream
Day took the opportunity to try to explain the nuances of Tremor's ad-network model as it seeks to add a programmatic-buying component to its other automated offerings for functions like media planning, measuring, targeting and optimization. In addition, he alluded to AOL's $405 million purchase of video-ad marketplace Adap.tv and even Facebook's development of a video-ad solution as further validation of the path Tremor has chosen.
Day said that among all the areas automating the valuation and placement of ads, buying is the easiest. But since programmatic video buying is fairly nascent, he doesn't feel Tremor is behind despite having no offering.
"[Programmatic is] in our product path and it's in our aptitude," Day told analysts. "We buy into the fact that programmatic is where the industry is headed. But it's still early. Most programmatic now is not premium and is in-banner. But that will change over time and we'll be more than ready."
Day had a sharp critique for companies that rely mostly on programmatic video for ad buys. He touted Tremor's relationships with more than 500 publishers, 200 of which are exclusive.
"Any company can work with nonpremium content and say, 'It's the data and the algorithm that matters, not the quality of the content and placement,'" Day said. "We know this does not resonate with brand advertisers."
He noted how the company made a major decision to move out of in-banner video – which, among other things, cannot measure whether a person has "viewed" the ad and is therefore not attractive to brand marketers – to in-stream video advertising, which is "viewable."
"Our focus on in-stream video and the elimination of in-banner video is a great example of how we execute on the quality strategy," Day said. "In 2011, we made the decision to focus entirely on in-stream video, the format brand advertisers want. Our in-stream revenue grew 45% in the second quarter, so it's clear that marketers are buying into our plan. We know it's a challenge to most players in the space, particularly, since it isn't limitless like display. But that's why it's premium and that's why it fits our model."
About 99% of Tremor's revenue came from in-stream ads in Q2, he noted, adding that Tremor just wrapped up its last in-banner campaign in July.
The shift from in-banner may have cost the company some additional revenues in the short term, but for Q2 that didn't seem to be much of problem. Yet, over time, unless so-called "premium" brand dollars make an accelerated shift from TV to online video, Tremor and its shareholders could regret that decision.