Ad-tech seemed to be riding high just a week ago, but an investor community still unable to grasp the space sent it for a wild ride last Friday which continued today.
After a difficult start to the year, things finally started looking up for ad-tech when Rocket Fuel and Criteo went public early this fall. Criteo stock shot up over 30% on its first day of trading and Rocket Fuel spent October trading at nearly double its IPO price.
But Tremor Video's lower than expected earnings on Friday seemed to send the whole slate into flux. On top of a 49% drop for Tremor (it went from $9.26 to $4.54 on Friday), Rocket Fuel dropped 20%, YuMe dropped 19% and Criteo dipped below its IPO price, finishing the day $29.75.
While the stocks have rebounded slightly today, the volatility exposed an investment community still unsure of what to make of ad-tech. It's a hot sector -- with companies billing themselves as able to stand shoulder to shoulder with the social giants -- but investors have yet to grasp its intricacies and long term outlook in a way that would translate into market stability.
"So far most investors have not paid particular mind to competitive issues that will inevitably come to bear on those companies which have recently gone public," said Brian Wieser, a senior research analyst at Pivotal Research Group and former EVP at Magna Global, suggesting a limited knowledge of ad-tech among those putting money into it. "So it is safe to say that valuations have not reflected these factors to date."
The stocks' tanking on Friday, Mr. Wieser said, appeared to be the result of nervousness about high valuations of companies within the ad-tech industry.
While Tremor has had a rough go of it for some time, the dip of Criteo, which earned widespread praise for its differentiated intellectual property and sizeable revenue, was surprising and perhaps the best sign of investors' general bafflement with the space.
"If you're selling Criteo stock because Tremor had a bad quarter, maybe public markets aren't for you," said Ari Paparo, senior VP of media products at Bazaar Voice, in a tweet aimed at panicked stock traders Monday morning.
When asked if investors were then just confused by Criteo, Mr. Wieser said: "Your take – that investors are confused by it – is generally correct. I would just characterize it as 'still learning the company and its competitive positioning.'"