Category: online advertising

Today NYSE, tomorrow NBC

Scott Denne

Contact: Scott Denne

Twitter harbors ambitions of being a force in both online video and traditional television. Now that the distraction of an IPO is behind it, we expect the company to focus its dealmaking efforts on video advertising technology.

Twitter’s audience isn’t growing as fast as it once was, and to ensure that its revenue growth rate doesn’t slow, it needs to squeeze more revenue from its audience. That was the rationale behind picking up MoPub, which will help Twitter build programmatic features into its own platform and serve as a gateway to the mobile ad market. A video ad firm would enable it to monetize Vine, extend into the growing online video ad space and, most important, grab a piece of the TV ad sector (which still dwarfs the entire digital ad market) by bringing those dollars into its own platform and helping spread them to other places on the Internet by enabling advertisers to follow an audience beyond the living room.

Talent and technology have been the guideposts for Twitter’s past acquisitions, and there’s no reason to think that would change. (The same principles shape the company’s organic growth, as it spends a whopping 40% of its revenue on R&D.) Along those lines, potential targets that would be a good fit are BrightRoll, TubeMogul or even a smaller, emerging video ad provider.

While much of BrightRoll’s business comes from its video ad network, it also operates a video ad exchange, which is similar to what MoPub does in the mobile market. We understand the business has about $240m in annual revenue, so it would be a big bite. TubeMogul sits on the other side of the ad tech table, selling a platform to advertisers to distribute video ads across real-time exchanges, making it a potential complement to MoPub. In addition, it doesn’t come with the ad network baggage, making it a more attractive target for Twitter. TubeMogul also has substantial revenue of its own, bringing in $54m last year and likely well over $100m this year, all with profit margins that are far above the norm in ad tech, according to our sources.

There’s also a handful of emerging players that would likely require less of a capital commitment and could impact Twitter’s efforts in this space. For example, firms like Spongecell and Vungle would bring creative talent, as well as tech. Another possibility is StickyADS.tv, a Paris-based company that would bring Twitter video ad technology as well as a deeper presence in Europe, potentially helping it with low spending among advertisers outside the US.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Will Criteo be a have, or have-not, ad-tech IPO?

Scott Denne

Contact: Scott Denne

Ad-tech IPOs have had mixed results this year. While Wall Street has shown little inclination to get behind most ad networks, it’s been quick to reward high-growth companies with demonstrated technology chops. Which bucket will Criteo fall into when it starts trading?

Compare the 2x and 4x trailing revenue multiples given to YuMe and Tremor Video with the 11.6x given to Rocket Fuel. On the one hand, Criteo looks more like Rocket Fuel. The company posted $253m in revenue through the first half of 2013, up 72% from a year earlier. While that’s about half the rate Rocket Fuel grew, it is off a base that’s about twice as high.

The price Criteo pays for inventory – the empty slots where it puts its customers’ ads – could hamper its valuation. That cost is now 60% of revenue, up slightly from 56% a year earlier, and enough of a change to tip the profitable company into the red this year for the first time in at least three years.

Ad networks like Criteo and Rocket Fuel compete by offering customers the lowest prices for a desired outcome (typically, clicks on an ad). To offer lower prices, they can either build technology to lower their media spending without lowering the click-through rates, or they can swallow smaller profit margins on each ad campaign. Criteo’s rising media costs suggest it’s moving toward the latter camp, perhaps because its technological advancements may not be keeping up with competitors’ price cuts. Rocket Fuel, by comparison, is seeing its media costs shrink steadily, to 45% of revenue so far this year, from 51% in 2011.

Criteo last adjusted its proposed price range up to between $27 and $29 per share, which would give it a valuation of about $1.5bn, or 3x its last 12 months of revenue, were it to set a price at the midpoint of that range. When it becomes available to public investors, we anticipate the company will trade with a valuation multiple between 6x and 7x its trailing sales – higher than most ad-tech companies, but lower than Rocket Fuel – giving it a valuation between $2.8bn and $3.2bn.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

#AcquiringForGrowth

Scott Denne

Contact: Ben Kolada Scott Denne

Twitter is ramping up its M&A program in what appears to be an attempt to buy faster growth. The company made its much-anticipated IPO paperwork public on Thursday and while the numbers are impressive, their acceleration is slowing. To offset the slowdown in its organic business, Twitter is doing more deals than ever before – and bigger ones at that. Its two largest deals, according to our understanding, have both been announced this year, collectively accounting for probably about three-quarters of all the money Twitter has spent on its M&A program. Further, 2013 has been its most active dealmaking year, and we still have one quarter to go.

From what was likely very little revenue in 2009, Twitter’s top line has hockey-sticked to $316.9m last year. That’s nearly 300% growth year over year and more than 11x what it recorded just two years earlier.

But as the company reaches a larger revenue base, its growth rate is beginning to slow. Annualizing Twitter’s first-half results would put its projected 2013 sales at just north of $500m. While it may not be fair to annualize six months of results for such a fast-growing company, we still don’t think its 2013 revenue will top $650m, which would be about twice its sales from last year. (We’d also note that Twitter’s year-over-year quarterly revenue growth rate has been declining since Q3 2012.)

Further, growth in Twitter’s total number of users and their level of engagement is slowing. In the US, which accounts for three-quarters of its advertising revenue, the average number of times that users engaged with Twitter was up only 1% from the previous quarter while the number of monthly users was up just 2%. Compare that with a year ago when those same metrics posted 11% and 9% quarterly growth, respectively.

Given the need for more advertising revenue on a slowing user base, we expect Twitter to increase its volume and value of acquisitions. One area the company could move into is digital video advertising, where the rates are higher than mobile or display. Twitter has already announced a product that enables television advertisers to follow an audience from a TV show to Twitter. That could become a more powerful proposition to both advertisers and content providers if Twitter could expand that capability to other parts of the digital world.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Rocket Fuel takes off on debut

Scott Denne

Contact: Scott Denne Tejas Venkatesh

Adtech company Rocket Fuel created fireworks on the public markets today, first debuting at the high end of an already upwardly revised range and doubling shortly thereafter. The offering creates $1.8bn in market value, and highlights investors’ hunger for a combination of growth and technology differentiation.

Rocket Fuel generated $160m in revenue for the year ended June 30, up roughly 135% from the same period last year, valuing the company at a handsome 11.6x trailing sales. In its filings, the company emphasized its use of artificial intelligence and complete automation of ad buying. That makes it unique from other demand-side platforms, which work more like a Bloomberg terminal for ad buying, and that seems to appeal to investors seeking an adtech business that’s based on technology, rather than an arbitrage of buying ad inventory and reselling it at a higher price.

That growth and tech combination is resulting in the superior valuation compared to recent adtech IPOs like Tremor Video, Marin Software and Millennial Media, all of which trade at less than 6x trailing sales. For instance, Millennial, which is comparable to Rocket Fuel in revenue run rate, trades at just 3x trailing sales.

Rocket Fuel’s offering is good news for larger rival Turn, which is planning its own IPO. We believe the nine-year-old startup is generating roughly $250m in revenue and is likely to file its paperwork early next year.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Twitter gets mo’ advertising with MoPub

Scott Denne

Contact Scott Denne

In its largest acquisition, Twitter is spending about $350m in stock for mobile ad exchange MoPub. The bit of portfolio expansion into the fast-growing market comes as Twitter reportedly readies itself for an IPO, which is widely expected for next year. The deal brings Twitter instant access to two of the biggest trends in digital marketing – programmatic buying and mobile advertising.

Despite the growing popularity of those two trends, there are few companies focused on doing both. That scarcity likely contributed to the rich price Twitter is paying for a company that started selling less than two years ago. Aside from MoPub and its closet competitor, Nexage, there aren’t any notable ad exchanges dedicated to mobile. As interest in mobile advertising has grown, so has MoPub’s revenue, which we understand will be $20-25m in the current quarter.

This is the fifth mobile-related acquisition (out of nine total) by Twitter in the past 12 months. We would note that the breakdown in Twitter’s deal flow mirrors the activity of its users, 60% of which access the social network via a mobile device at least once a month.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Amobee hunts for mobile-ad tech

Scott Denne

Contact Scott Denne

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.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Bye-bye Ballmer

Brenon Daly

Contact: Brenon Daly

Lost in the schadenfreude and snark that has accompanied Steve Ballmer’s decision to leave the top spot at Microsoft within a year is one undeniable piece of his legacy: No other tech CEO has accumulated as many assets in key markets as Ballmer.

In addition to the fat-margin franchises that Ballmer inherited, he steered the company on an M&A program that built up offerings around growth markets such as mobility, cloud infrastructure, data warehousing, online communications, digital advertising, collaboration and beyond. During Ballmer’s 13 years running the software giant, Microsoft dropped more than $25bn on its acquisitions.

Of course, there have been M&A missteps. The company has endured big write-offs (aQuantive), gotten burned by targets with dubious accounting (FAST Search & Transfer), drastically overpaid on other acquisitions (Skype), and has seen the period for returns on deals drag beyond a decade (Great Plains Software, Navision).

But in the end, Microsoft has at least brought together a basket of offerings, built on in-house and acquired technology, that makes it relevant in today’s tech market. Want proof of that? Microsoft is actually increasing sales. Granted, it’s only about 5% growth, but at least Microsoft is growing. The same can’t be said for IBM or Oracle or Intel or Dell or Hewlett-Packard. (Oh yeah, and Microsoft is growing while also throwing $20bn to the bottom line each year.)

From our perspective, one of the main challenges for Microsoft’s next CEO will be realizing a return on all of its previous dealmaking. Ballmer’s M&A program has put the pieces in place, but for the most part, they have been underutilized. It’s time for an execution-focused chief executive to wring more value out of the enviable collections of assets that Microsoft has already acquired.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Zillow takes a big bite of the Big Apple, acquires StreetEasy

Brenon Daly

Contact: Brenon Daly

Looking to expand its offering in one of the most competitive real estate markets in the US, Zillow pays $50m in cash for New York City-focused StreetEasy. The deal, which should close this month or next, will be part of the company’s Marketplace portfolio, which generates about two-thirds of total revenue at Zillow. (The remaining revenue comes from display advertising and mortgage offerings, two businesses where Zillow has also used tuck-in acquisitions.)

Founded in 2006, StreetEasy provides both rental and for-sale listings in the New York City area. The company draws nearly 1.2 million unique visitors each month. (For comparison, Zillow attracted more than 61 million users in July, up from 37 million in July 2012.) StreetEasy is the largest of Zillow’s seven acquisitions, which have all come in the past two and a half years, according to The 451 M&A KnowledgeBase.

Fitting for a company that is growing at about 60%, Zillow recently told Wall Street that it will be increasingly reinvesting in its business. In the second quarter, Zillow lowered its EBITDA projection for the rest of the year, while bumping up its revenue forecast. (It now sees about $185m in sales for 2013, compared to a market capitalization of $3bn.)

Although Zillow holds roughly $170m in cash and short-term investments, the company also announced plans to sell 2.5 million new Class A shares. (Additionally, private equity firm Technology Crossover Ventures and company insiders have registered to sell another 2.5 million shares.) At current market prices, the secondary would add some $215m to Zillow’s treasury. Zillow priced its IPO at $20 per share in mid-2011, sold additional shares last September at about $40 each, and now trades at more than $80 each.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Millennial Media acquires Jumptap to consolidate mobile advertising

Contact: Tejas Venkatesh

In its largest acquisition by far, Millennial Media has announced the purchase of fellow mobile advertising firm Jumptap. Millennial will hand over 24.6 million of its shares and $12m in cash to Jumptap, valuing the target at $221m based on Millennial’s stock price close on Tuesday. The deal brings together the advertising networks of the two companies, which will now combine to form a larger network of ad properties to compete against Google.

Jumptap generated sales of $63.6m in 2012, including $10.5m from its telecom portal business, which it will shutter. Excluding that legacy business, Millennial is valuing Jumptap at 4.2x last year’s sales. For comparison, Millennial garners a valuation of 3.5x trailing sales on the public markets. On the other side, the transaction is a ho-hum exit for Jumptap’s investors – General Catalyst Partners, Redpoint Ventures and other firms – which collectively funneled roughly $120m into the nine-year-old company.

The deal comes even as Millennial reported a second-quarter earnings loss after the bell yesterday. The company also fell short of analyst expectations for its top line, reporting $57m in revenue versus the consensus estimate of $59m. As a result of the acquisition and its earnings report, Millennial’s stock plummeted more than 17% in early trading today. By midmorning, shares were changing hands at $7 per share, roughly half its IPO price of $13 in its March 2012 debut.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Omnicom and Publicis Groupe ink $35bn merger agreement

Contact: Tejas Venkatesh

Traditional advertising firms Publicis Groupe and Omnicom, which together generated $22.7bn in revenue last year, are combining to become the biggest advertising company in the world. The blockbuster consolidation comes as advertising increasingly moves online, a transformation that threatens the entire media landscape. In many ways, advertising has become more Silicon Valley than Madison Avenue – a key point that executives from both Publicis and Omnicom said drove the deal.

Both firms have used M&A in the past – albeit on a much smaller scale – to try to stay relevant as ad dollars go to digital outlets. For the most part, recent deals at both Omnicom and Publicis were driven by technology gaps, with geographic expansion also spurring some acquisitions. That has led to a flurry of transactions at Publicis. According to The 451 M&A KnowledgeBase, Publicis inked 16 deals in the past 24 months. (During the same period, Omnicom acquired only three companies.)

While Publicis and Omnicom focus on the complex task of trans-Atlantic integration, we suspect the pace of M&A at the soon-to-be-formed giant will slow. But eventually, we expect the company to step back into the market as it realizes that even with the sprawling portfolio, it still lacks the necessary technology to keep pace in a digital ad world. After all, even Google – the dominant online advertising company, and one that’s native to the digital world – has had to spend billions of dollars on dozens of deals (DoubleClick, AdMob, Wildfire Interactive, etc.) to round out its own portfolio.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.