The ad tech industry isn’t going anywhere, but 2014 exhibited some of the financial shakiness that dogged public ad tech stocks through much of 2013, especially for companies that went public in the last 12 to 15 months.
“The only slight surprise for me and many others [in 2014] was the sudden switch in sentiment regarding ad tech,” said Tom Chavez, CEO of independent data-management platform (DMP) Krux. “It seems that ad tech started out quite strong and the market got spooked and changed its mind and that was reflected in valuation.”
If 2013 was a tough year for public ad tech companies (see: Millennial Media, Marin Software, Tremor Video, YuMe, Conversant/ValueClick), 2014 was slightly better.
Elgin Thompson, managing director at Digital Capital Advisors, described it as “good but not great year, depending on the underlying company and the business model and the sector.”
Many companies went public promising technology, but as investors got a closer look, they realized that many of these so-called ad tech firms were built around a network model, and had to rely on a pricy sales team to ensure consistent growth – in other words, they had to buy their revenue.
“Anything that looks like a network, walks like a network, quacks like a network, people are taking a pretty withering view,” Chavez said.
Wall Street didn’t suddenly start buying into the online ad industry in recent years for the sake of it.
One source, an executive at a private ad tech company who spoke on background, said that big investors, interested in buying growth, liked certain characteristics of ad tech – the sector seemed steady, reasonably fast-growing and had a finite number of companies at IPO scale.
Following investment, however, many ad tech companies revealed themselves as ad networks in disguise, which dampened the initial excitement. It also forced investors to become more sophisticated about the space.
As such, they became canny to the fact that certain buzzwords like “recurring revenue,” “software-as-a-service” and “long-term contracts” were all used to camouflage what were in actuality network models with a few technological add-ons.
Investors are now canny enough to ask whether an ad tech company actually is a tech company. It’s one of the reasons some vendors like French retargeter Criteo, which insiders say has a robust sales and marketing model, has had continued success relative to its peers.
On the other hand, companies once thought to be diamonds in the rough, like ad network Rocket Fuel, have since lost their luster. Rocket Fuel’s initial price per share was $29 when it debuted September 2013 and skyrocketed into the $60 range. But in early February, following a secondary sale in which executives cashed out to about $150 million, Rocket Fuel’s stock dipped and, since August, it’s hovered around $15.
“From my perch, there seems to be a tilt back to good, old-fashioned technology,” Chavez said. Notably, Rocket Fuel bought [x+1] in August, potentially giving it a tech platform play. (See list of 2014 M&A activity below.)
Thompson agreed with Chavez.
“What’s getting value? Scale, true technology and speed to market,” he said. Scale plus material revenue growth, Thompson said, indicate customers believe in a vendor’s product and are willing to pay for it. It’s validating and indicates staying power.
“We’re finding our pipeline is very full and we’re having to dig in on the technology side to bet which companies have true data science, not just an ad network passing itself as something else,” he said.
Because the Fed will likely raise interest rates by the spring, Thompson anticipates IPO activity will pick up in the first half of 2015.
“You’ll see a flood of IPOs in Q1 and Q2, just to get out the door,” he said. Thompson said investors are better equipped to distill the hype that often accompanies ad tech firms.
Still, one source cautioned not to view IPOs as an end to a race, but simply as a financing event. More often than not, an IPO happens because investors want to get paid. Companies compelled to go public at less than a $1 billion valuation often find themselves enthralled by momentum traders who aren’t making long-term bets about a sector, which creates tremendous fluctuations in the stock price.
Factor in 90-day reporting cycles, shareholder scrutiny, compliance costs of about $2 million per year and the need to create constant growth at the expense of long-term investments, and an IPO – both in the run-up and aftermath – is an eternal migraine.
Going Public In 2014
Though Thompson characterized 2014 as “a good year,” companies that went public in 2014 – like Rubicon Project, Matomy and TubeMogul – had mixed success. Supply-side platform (SSP) PubMatic seemed to gear up for an IPO in February, but nothing came of that initial sound and fury.
Israeli performance network Matomy pulled out of its IPO from the London Stock Exchange in April, citing a technicality, and resurrected its public aspirations in July when it sought to raise $70.1 million at a $347 million valuation. Initially, it had sought to raise $100 million at a $400 million valuation. In October, Matomy insiders sold a 20% stake of the company to Publicis Groupe.
Unlike Matomy, Rubicon’s IPO wasn’t cursed from the start. In March, it sought to raise $108 million at a $671 million valuation, and it stormed out the gate in April, debuting at $15 per share and shooting up to $20. Initial investor excitement stemmed from what Rubicon – largely viewed as a supply-side platform – could eventually be: a major tech player in video, mobile and on the demand side.
Certainly, the company has taken steps to expand its core competencies – its recent acquisitions of iSocket and Shiny Ads (see below) give it technologies to automate the direct sales process. Previously, it released 49bc, a product that focuses on direct-sold mobile inventory.
But video is another story, and Rubicon, in its most recent quarterly earnings call, scaled back its once-lofty video aspirations. At the time, its market cap, which Rubicon hoped during its April IPO would be $671 million, was $367 million. Nevertheless, Rubicon’s quarterly revenues have been strong and its market cap as of this writing was $586 million. Its stock has trended upward since mid-October and is now in the $16 range.
Video DSP TubeMogul has done well, despite an inauspicious beginning in July when it priced its shares at a cut-rate $7. One AdExchanger source wondered at the time if investor pressure motivated TubeMogul‘s IPO.
But since then, TubeMogul has a market cap of $685 million and its stock is in the $20 range. Its self-serve business was the source of considerable gains during its most recent quarterly, and the company is looking to expand its mobile and international footprint.
The challenge, going into 2015, is that many ad tech vendors play a game of me-too.
“They look at who’s done well before them and they try to model that marketing speak to advisers, the public marketers and the press,” Thompson said.
M&A Trends: Power To Data And Video
For many companies, the preferred way to cash out is to get acquired. And there are numerous ad tech and marketing tech players out there looking to build one-stop shops, and hunt for features to round out their stack functionalities.
In ad tech, consider Google, Facebook, AOL, Yahoo and Twitter. In marketing tech, consider Adobe, Salesforce and Oracle.
Oracle made a tremendous splash on Monday, revealing its intent to acquire Datalogix, adding it to the data exchange it inherited February through its BlueKai acquisition. Nielsen and Adobe were also rumored Datalogix suitors.
Other big data plays include Acxiom’s purchase of onboarder LiveRamp and Alliance Data Systems buying Conversant on behalf of its data marketing unit, Epsilon.
Certain features seemed particularly in demand in 2014, including DMPs (Oracle-BlueKai, Rocket Fuel-[x+1], Publicis-RUN and IgnitionOne-Knotice), attribution engines (Google-Adometry, AOL-Convertro) and video platforms (ComScore-FreeWheel, Facebook-LiveRail, Yahoo-BrightRoll, Telstra-Ooyala and RTL Group-SpotXchange).
There’s a snowball effect that helps decide which categories “pop” in any given year. A source noted that as a vendor in a specific bucket looks to sell – or as larger stack player look to acquire – it creates chatter. If one company buys a point solution, its competitors might begin to prioritize similar point solutions to stay competitive.
A lot of M&A activity happened in 2014 and Thompson anticipates more in 2015, as new entrants – like Accenture, IBM, Dell and HP – will start to build out marketing tech stacks.
“There’s a lot of cash on balance sheets in tech,” Thompson said. “There’s $500 billion across the top 250 public tech companies. They like any other company are searching for growth, and that will fuel M&A activity in startups.”
The following is a list of M&A activity that occurred in 2014. This list isn’t by any means exhaustive and it’s focused on ad tech companies, so we’re leaving out some major acquisitions, like Publicis buying Sapient for a cool $3.7 billion.
Additionally, the dates reflect the times at which the intent to acquire was announced, and not the actual closing date.
February
Oracle buys BlueKai for an estimated $350-$400 million. It inherits a DMP for its marketing cloud and used BlueKai’s data exchange as a linchpin for Oracle Data Cloud, which the company unveiled in July.
Google buys anti-fraud tech provider Spider.io and its founder, Douglas de Jager.
March
Comcast buys FreeWheel, though it declares the video ad-serving platform will continue its independence. TechCrunch estimates the price at $320 million.
Resistance is futile for tag management provider Tagman, which is ultimately assimilated by its competitor Ensighten.
IgnitionOne buys Knotice, a DMP and email service provider.
May
Google snaps up attribution vendor Adometry, the same day AOL buys attribution vendor Convertro for $101 million.
Acxiom buys data onboarder LiveRamp for $310 million.
AOL’s Adap.tv buys PrecisionDemand, which mines set-top box data.
SSP PubMatic buys mobile ad server Mocean Mobile.
June
AppNexus buys Parisian viewability firm Alenty, its first of three acquisitions for the year.
Marin Software buys audience retargeting platform Perfect Audience for about $23 million.
Singaporean telco SingTel acquires ad network Kontera and cross-channel platform Adconion on behalf of its mobile ad solutions subsidiary, Amobee.
Twitter tries to make TV more social when it buys SnappyTV, a video clipping and distribution platform.
Google buys the small digital video ad tech provider mDialog.
July
Twitter buys TapCommerce for an estimated $100 million.
Facebook acquires video SSP LiveRail for an undisclosed sum, though TechCrunch estimates the price between $400 million to $500 million.
Yahoo gets video distribution platform Rayv and, more significantly, mobile analytics platform/marketplace Flurry.
LinkedIn buys B2B display ad platform Bizo for $174 million.
RTL Group acquires a 65%, $144 million stake in video SSP SpotXchange.
August
Ad network Rocket Fuel lifts off with its acquisition of DMP/DSP [x+1] for about $230 million.
ComScore bolsters its cross-platform fraud fighting with the purchase of cybersecurity startup MdotLabs.
Australian telco Telstra acquires a majority stake in Ooyala, a video analytics platform. Telstra previously owned a 23% stake for $61 million. It ups its ante with an additional $270 million investment, for a 98% stake.
IgnitionOne builds out its mobile capabilities in purchasing mobile DMP/DSP Human Demand.
Here comes a new challenger! Just when it seems that Google would buy the video game streaming platform Twitch, Amazon swoops in and buys it for $1 billion.
September
Here’s a doozy: Alliance Data Systems buys Conversant – formerly the ad network ValueClick – for a cool $2.3 billion. Most of the Conversant assets will be used by Alliance Data’s Epsilon subsidiary.
AppNexus buys Open AdStream from WPP Group’s Xaxis. As part of the deal, the agency holding company receives a $25 million stake in AppNexus, worth about 15% of the company.
Much-maligned Millennial Media buys mobile SSP and exchange Nexage for $108 million.
October
This one isn’t a complete acquisition, but WPP Group buys 16.7% of media measurement company Rentrak for $98 million. Rentrak in turn gets Kantar Media’s TV measurement business in the US. It was WPP’s second tech-for-equity swap in two months.
Ensighten slaps its acquisition tag on Anametrix, a multichannel analytics shop.
Telstra’s Ooyala acquires video SSP Videoplaza.
Matomy buys mobile programmatic ad platform MobFox for $17.6 million.
Publicis Groupe buys RUN DMP for an undisclosed sum, on behalf of its media agency Starcom MediaVest Group.
November
MediaMath acqui-hires ad tech startup Rare Crowds. Rare Crowds founder Eric Picard joins MediaMath as its VP of strategic partnerships, focusing on the build-out of private marketplace products.
After a month of rumors, Yahoo acknowledges it’s putting its Alibaba money to use and buying video ad network-turned-platform BrightRoll for $640 million.
Rubicon Project hits a double when it buys iSocket and Shiny Ads, two ad tech companies that focus on automating direct deal processes. The total cost of the deals is $30 million, though sources think the bulk of that comes from iSocket.
December
AppNexus buys cross-device ad tech startup MediaGlu, bringing its yearly M&A activity to about $200 million.
Oracle buys Datalogix, which links online activity to offline shopper actions. Datalogix, a major Facebook partner, will fold into Oracle Data Cloud. Nielsen and Adobe were also rumored to be in the running for Datalogix.
