Author: Scott Denne

Amobee hunts for mobile-ad tech

Scott Denne

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Amobee’s purchase of Gradient X is the latest in a line of mobile-advertising deals, as ad-tech companies bring on new capabilities to serve the quickly growing market.

Amobee became a subsidiary of SingTel in a $321m deal last year. It was unique in that a wireless carrier was spending a significant amount of money to extend beyond its core services business. The rationale behind that deal was to give Amobee resources to expand. Earlier this year, Amobee acquired Adjitsu.com for interactive-ad technology, and continues to look for deals that bring it new mobile technologies or enable its global expansion.

Gradient X had just begun commercializing technology to automate and optimize the purchase of mobile ad space. Amobee already offered advertisers a product that would enable them to place their mobile ads across different publishers through a manual process.

This deal brings the total number of mobile ad-tech acquisitions so far this year to 16, one more than all of last year, according to the 451 KnowledgeBase. Other deals include app developer Phunware’s $23m purchase of mobile ad network TapIt Media, Millennial Media’s $14m acquisition of mobile-ad targeter Metaresolver and its $221m deal for Jumptap, which it bought for capabilities such as real-time bidding and targeting. (Investors didn’t exactly love Millennial Media’s bet on Jumptap, and knocked shares in the company to their lowest-ever levels.)

Still, the market is growing quickly, according to Interactive Advertising Bureau. Mobile-advertising spending doubled last year to $3.4bn. However, we would note that is still less than a tenth of the digital advertising market in the US, despite consumers spending an ever-increasing amount of time on their mobile devices.

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Ringing Wall Street

Scott Denne

Contact:Tejas Venkatesh Scott Denne

Virtual phone systems vendor RingCentral revealed its prospectus earlier this week, likely setting up an IPO for next month for the 14-year-old company. The offering comes as RingCentral continues to evolve from a hosted answering machine service to a full virtual phone systems provider. RingCentral now enables voice, text and fax communication across multiple devices, including smartphones, tablets, PCs and desk phones.

The four-year-long transition is paying off. RingCentral generated $73m in revenue in the first six months of the year, up nearly 40% from the same period last year. Advances in broadband communications have resulted in rapid growth of the number of business lines hooked up with VoIP. According to the Federal Communications Commission’s latest local telephone competition report, VoIP business lines grew 106% between the end of 2009 and last summer. Further, there’s still a lot of room for growth, as only 10% of business lines are currently VoIP-enabled.

In addition to expanding its product portfolio, RingCentral is also looking to move upmarket. The company, which counts 300,000 customers, mostly caters to businesses that have less than 10 employees. As it continues to grow, RingCentral is looking to land larger customers. That strategy makes sense because small businesses are more likely to disappear, and are more expensive to support than bigger companies with an in-house IT team.

When RingCentral hits the market, we figure it will command a premium valuation compared with rivals due to its superior growth. Its primary competitor 8×8 currently trades at roughly 6x trailing sales. But that company, which is smaller than RingCentral, only grew 19% in the first six months of the year – just half of RingCentral’s rate over the same period. As a result, we believe 7-8x trailing sales would be a good starting point for RingCentral’s valuation. Slapping that range on RingCentral, which generated $136m in sales for the year ended June 2013, would value the company at about $1bn.

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Facebook focuses on mobile video

Scott Denne

Contact: Scott Denne

Having seemingly solved its earlier problems with mobile revenue, Facebook is turning its attention – and M&A activity – toward the next emerging media trend: social video.

The social networking giant has already shown that it can shift its business to meet emerging trends. When it went public less than 18 months ago, practically none of its revenue came from mobile. In Facebook’s most recent quarter, its mobile advertising products brought in 41% of its total ad revenue. More than a little of the growth can be tied to its rapid-fire acquisition program. After spending $1bn on photo-sharing app Instagram, Facebook has pursued a strategy of smaller deals to shore up its mobile technology and team, including its purchases of facial-recognition company Face.com and location-based app maker Glancee.

Its latest addition to the mobile business is Luma, a two-year-old startup based in Palo Alto, California. Facebook had hinted that a deal like this was a possibility. In its most recent earnings call, CEO Mark Zuckerberg said that Instagram’s newly launched video-sharing capabilities were in need of technology to stabilize the amateur videos on the app. That technology is at Luma’s core.

Acquisitions have always been a big part of Facebook’s business plan, but it has spent relatively little money in picking up new businesses, aside from its $1bn purchase of Instagram in 2012. Excluding that deal, Facebook spent $155m buying about 26 companies in 2011 and 2012. Through the first half of this year, the company has spent $246m on six transactions.

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