Ad-Tech Companies Struggle to Sell Themselves to Wall Street

Newly Public Firms Take a Pounding in the Market as Investors Try to Suss Out What Differentiates Them

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Ad-tech companies are finding they're much better at selling ads than stock.

CEO Bill Day at the Big Board for his video-ad network's first day as a public company.
CEO Bill Day at the Big Board for his video-ad network's first day as a public company. Credit: BusinessWire

Mobile-ad network Millennial Media, online-ad-software company Marin Software and video-ad network Tremor Video have gone public in the last 16 months, and all have been walloped by Wall Street while broader markets have performed well. As of the middle of last week, Millennial's stock was down roughly 30% from its offering price in March 2012. Marin's shares had fallen about 15% since its IPO in March. And Tremor had slid 19% in the three weeks since its debut.

Much of the blame falls on the companies' less-than-rosy business figures (none are profitable). But -- perhaps a bit ironically -- the advertising firms also have a marketing and metrics problem.

Among public investors "there's a lack of familiarity and understanding and also a lack of sophistication in understanding how the space has changed over the last few years," said Terence Kawaja, CEO of investment bank Luma Partners, who's also known for mapping out the display-advertising ecosystem with his "Luma-scapes."

With more than a dozen companies estimated to be somewhere in the IPO process, the industry as a whole could use an image makeover.


On the most basic level, Wall Street is struggling to grasp what separates one ad network from another when both have the same major publishers on their pitch decks. Marketers are also often hard-pressed to differentiate between offerings, which may serve very specific, arcane functions.

The fledgling industry also lacks standardized metrics that would make it easy for investors to compare companies. While one may tout impressions served as the main indicator of a booming business, another points to average price per thousand impressions.

Compounding the problem: First movers may be giving the sector a bad reputation.

"Not the best of the companies in their categories are going out first," Mr. Kawaja said.

The ad-tech companies aren't oblivious to the dilemma. In separate interviews, Marin Software CEO Chris Lien and Tremor Video CEO Bill Day said educating the financial community was a top priority. Millennial Media declined to make its CEO available.

With another wave of firms prepping to go public, the issue stands to become even more complicated. Retargeting firm Criteo, real-time ad-buying company Rocket Fuel and video ad-buying service have each confidentially filed pre-IPO documents with the Securities and Exchange Commission under the Jump-Start Our Business Startup Act, according to people with knowledge of the matter. Criteo and declined to comment. Rocket Fuel did not respond to a request for comment.

Mr. Kawaja counted 14 ad-tech firms at some point on the way to Wall Street -- from holding early talks with bankers to confidentially filing -- but expects only half to make it.


Given all the obstacles ad-tech firms face, why go public now? Necessity.

"A lot of the IPO action that's happening is because the [venture capitalists] have to get out," Pivotal Research Group analyst Brian Wieser said.

More problematically, not many VCs want in. Private investors have cooled on late-stage ad-tech companies, according to investors and industry experts. An acquisition would be a welcome alternative, but potential buyers are scared off by the nine-figure price tags that many of the bigger ad-tech firms carry. One VC has dubbed those too-big-to-buy companies "the growing dead" because they have topline revenue growth -- and may even be profitable -- but don't hold enough strategic value for buyers to pony up the big bucks.

Mr. Lien said Marin received no investor pressure to go public. "No one has sold stock in the initial public offering. On the contrary, several bought stock," he said. Marin went public, in part, to raise additional capital that could cycle into further building the business organically and through acquisitions and eventually push the company into profitability.

Tremor Video's Mr. Day, who also dismissed investor pressure as a factor in its IPO, said being public could potentially improve relationships with marketers. "There's a certain value to being a public company and doing bigger deals with [advertiser and agency clients] because it gives them confidence in the longevity of our ability to invest and be in business for the long term," he said.

MEC West managing partner Jitka Petrickova concurred. "If [an ad-tech vendor goes] public, it's just a testament that the partner is a good partner," she said, noting that buyers have to first perform their due diligence before investing any spend in an ad-tech firm.

Wall Street, take note.

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