While Bloomberg suggests the online ad dominance of Google Inc (NASDAQ:GOOG) is the leading cause of the weakness in the sector, the Q2 results don’t suggest that any of these companies are being impacted or dominated by Google Inc (NASDAQ:GOOG) in any way. Ironically, revenues are soaring, suggesting the prospects are strong, yet the stock prices all plunged. Has the market gotten the sector wrong due to a perceived weakness that doesn’t exist?
Digital ad growth
Whether mobile, social, or digital video ads, the ad-tech start-ups are targeting an estimated $193 billion spent globally on television ads during 2012. Several of the recent IPOs are targeting the digital video ad market expected to reach $15 billion in 2016 with overall online ads reaching $163 billion by 2016.
The market is competitive with venture investors pouring $7.4 billion into over 1,000 ad-tech start-ups. In fact, the weakness led Adap.tv to accept a $405 million offer from AOL. With IPOs firms Marin Software Inc (NYSE:MRIN), Tremor Video Inc (NYSE:TRMR), and YuMe Inc (NYSE:YUME) trading at sales multiples substantially below Google Inc (NASDAQ:GOOG), one has to wonder whether the market is overplaying the threat from Google Inc (NASDAQ:GOOG) or other start-ups.
Revenue acquisition management
Marin Software Inc (NYSE:MRIN)’s Q2 2013 net revenue was $18.2 million, up 30% year-over-year. The company runs a revenue acquisition management platform for advertisers that allows brands and agencies to manage and optimize their digital advertising investments across search, display, social, and mobile. While the majority of revenue presently comes from search, the complexities of mobile and social advertising will be the driving forces behind the growth of the platform.
The company has introduced several product enhancements that enable advertisers to better work with the Google Inc (NASDAQ:GOOG) and Facebook ad platforms. The Marin Software Inc (NYSE:MRIN) platform allows customers to optimize Product Listing Ads and Enhanced Campaigns with Google Inc (NASDAQ:GOOG) and homepage ads, mobile app install ads, and page like ads in newsfeed for Facebook. The ability to work with these two major ad platforms along with other third-party platforms has made Marin Software Inc (NYSE:MRIN) indispensable, causing advertisers to increasing sign up with 542 active advertisers now.
Though this IPO was priced better than the other advertising start-ups, the stock plunged after that. The company priced at $14, above the original range of $11 to $13, yet the stock quickly plunged from initial trades near $20 to below $9 within weeks of the IPO. So, even the one successful IPO in the group still failed miserably in the market. After a strong quarterly report, the stock still trades over 10% below the offering price.
In-stream videos
Tremor Video Inc (NYSE:TRMR) reported Q2 2013 revenue that surged over 40% and easily surpassed analyst estimates. Gross margins increased to 46.5%, as the company has been able to grow revenue and hold down costs. The in-stream revenue segment saw a more impressive 46% growth rate. Adjusted EBITDA jumped to $2 million from a loss of $2.5 million last year.
The company utilizes proprietary algorithms for its VideoHub technology to build decision trees that predicts performance for the chosen key performance indicators based on signals. The technology sorts every video stream into approximately 72 categories, enabling the optimization of a video ad campaign. With the offered transparency into the decision tree, the company has been able to sign up 500 premium websites and mobile applications, over 200 of which partner with it on an exclusive basis.
