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Video Ad Net YuMe Files for $65 Million IPO

Company Follows Tremor Video's Tepid Debut

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Tremor Video's underwhelming initial public offering last week hasn't scared off rival video ad networks from courting Wall Street. One of Tremor's longtime rivals YuMe filed for a $65 million IPO on Tuesday despite similarly shaky numbers.

As with Tremor, mobile ad network Millennial Media and digital ad firm Marin Software, YuMe is not expected to be profitable by the time it hits the public market. In the first quarter of this year, the Redwood City, Ca.-based company recorded a $3.3 million net loss and carries a $25.3 million accumulated deficit -- neither of which will inspire much confidence from profit-seeking Wall Street investors who have shrunk Tremor's stock from last week's initial $10 price to close Tuesday at $7.96.

However YuMe did close 2012 with a $6.3 million profit, and recent revenue growth figures suggest some cause for optimism. Last year the company -- whose global ad network spanned more 257 million monthly unique users in May -- increased its revenue by 70% year-over-year to $116.7 million. That growth rate outpaced the Interactive Advertising Bureau's measured 28% rise in U.S. digital ad revenues between 2011 and 2012 as well as eMarketer's estimated 47% boost in U.S. digital video ad spending. Compare that with Tremor's 17% year-over-year rise in 2012.

Both video companies grew fast in the first quarter: Tremor was up 43% year-over-year to $24.8 million, while YuMe pulling in $26.6 million, or 33% higher than the same period last year.

Of the 500 brand and agency clients that purchase video ads via YuMe, such as American Express and AT&T, twenty contributed roughly half of the company's 2012 revenue, according to the company's filing. Omnicom Media Group alone accounted for more than 10% of that revenue.

YuMe has raised $74.4 million in funding since launching in December 2004. It plans to list on the New York Stock Exchange under the ticker symbol YUME.

YuMe's bet is that TV ad dollars shift to video and to interactive TV interfaces, where it has a foothold. The company is also banking that TV's business model stays roughly the same and that spots are bought on a per-impression basis. The company acknowledged in its pre-IPO securities filing that a move towards more direct-response pricing, where an advertiser pays for a sale or an action, could hurt its business.

Those fears don't seem likely to come true. TV buyers shifting their dollars to digital would prefer the traditional route of buying audiences by eyeballs versus actions. Plus YuMe counts in its court a big proponents of impression-based ad buying. Mitchell Habib, COO of TV ad measurement juggernaut Nielsen, sits on YuMe's board and stands to benefit from the stock's success.

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