How YuMe Feels About AOL Raining on Its IPO Day (Not Too Bad)

Video Ad Firm's Stock Was Stable At Offering Price of $9

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Today was supposed to belong to YuMe. The video advertising company made its Wall Street debut Wednesday morning, but a couple hours before its CEO Jayant Kadambi rang the opening bell on the New York Stock Exchange, AOL announced that it had acquired video ad exchange Adap.tv for $405 million.

In an interview Wednesday morning, YuMe's SVP-marketing Ed Haslam -- charged with stewarding the company's brand through the good and bad -- dismissed the notion that AOL had rained on his company's parade.

YuMe CEO Jayant Kadambi ringing the NYSE opening bell
YuMe CEO Jayant Kadambi ringing the NYSE opening bell

"I think it validates the market....AOL spending that kind of capital on a peer of ours only validates the interest. It's yet more scrutiny by yet more people on different companies' approaches," Mr. Haslam said.

YuMe may benefit from yet more scrutiny.

As with this year's two other major ad tech IPOs, Marin Software and Tremor Video, Wall Street has only lightly embraced YuMe. As the markets closed, shares closed at $9, about where they started, which is itself a subplot. YuMe priced its initial offering at $9 per share, which was under the $12 to $14 range projected in its pre-IPO regulatory filings; Tremor had similarly set its price below the anticipated range and has seen its stock slide by 19% since its IPO in late June.

YuMe decided to price its offering at $9 based on its bankers' counsel, Mr. Haslam said, adding that the $12 to $14 expected price range had been set prior to the company's investor road show. "We looked at the demand and came back and said we think [$9] was the best price to have a strong opening." He declined to comment on whether any private investors have sold or will be selling their stake.

Mr. Haslam emphasized YuMe's quarterly performances over the long term as more important than what price its stock opened or closes at, but that's in part reliant on shareholders being able to parse how the company compares to the competition and assess its value accordingly -- a sophistication that's yet to be proven.

During AOL's earnings call on Tuesday, the portal's CFO Karen Dykstra was asked why AOL opted to pay $405 million for Adap.tv in light of the struggles seen by its video ad competitors in the public market. Without explicitly naming Tremor Video or YuMe, Ms. Dykstra responded that Adap.tv has a "different business model" than those companies invoked. "The others are more like ad networks that buy and sell for a margin," she said, positioning Adap.tv as a company that specializes in automating video ad buying whereas the video ad networks adopt a manual approach.

Mr. Haslam said Ms. Dykstra's assessment was "not entirely accurate."

"Unlike a Tremor where we saw in their [pre-IPO filing] their exclusives with publications and their site lists [leading them to be categorized as an ad network], we use...a technological approach to help find the right placements and a data sciences approach for finding audiences," he said.

For a more apples-to-apples bottom-line comparison, Adap.tv generated $75 million in revenue last year, 200% increase from the prior year, whereas YuMe's 2012 revenue rose by 70% year-over-year to $116.7 million and recorded a $6.3 million profit (AOL did not disclose whether Adap.tv is profitable). Tremor Video closed last year with $105.2 million in revenue, growing 17% year-over-year, but a $16.6 million loss. Tremor will report in second quarter earnings on Thursday.

Like YuMe, Adap.tv had confidentially filed pre-IPO regulatory documents with the Securities and Exchange Commission, according to sources, but opted to sell instead of go public. Mr. Haslam outlined two reasons for YuMe's decision to go public instead of selling or remaining independent as a private company.

"As we increase our share with major brand advertisers moving from six- and seven-figure budgets being spent on us, their level of trust in a public company is much greater than in a private company," he said. And being publicly funded would provide YuMe more capital to use in growing its business by investing in its technology and acquiring other companies.