With the Wall Street Journal (http://nnw.fm/9SxEJ) reporting that AppNexus filed its IPO paperwork, in a deal that is likely to be underwritten by Goldman Sachs (NYSE: GS) and JP Morgan Chase (NYSE: JPM), it’s time to review the ad tech landscape. After all, the deal is projected to be twice as large as the most recent ad tech IPO, The Trade Desk (NASDAQ: TTD), which commanded a premium of nearly 80% above its IPO price target and a $1 billion opening trading day valuation.
Despite the sagging economy, internet and mobile advertising has been growing by approximately 20% per year. Yet, despite the growth rate, the past two years have been tough for the industry and venture funding for ad tech startups became harder to secure, so any positive momentum is very welcome and may even explain the analysts’ enthusiasm for the players in the ad tech space, like The Trade Desk, which is rated a buy, or stronger, with an average price target of $33.43 and a call as high as $40.00, while Social Reality (NASDAQ: SRAX), which uplisted to the NASDAQ Capital Market in October 2016, has its analysts calling it a buy, on an EPS of 27 cents in 2017, with an average price target of $10.75 and the high target of $14.00.
With public sentiment experiencing one of the largest upswings in history, on the heels of the Trump victory, many businesses can begin to take an expansionary stance toward the future, and marketing should be one of the big beneficiaries should that trend come to fruition.
The ad tech industry, at one point, was somewhat of an afterthought, but once it became a crucial piece of the monetization model for the web and mobile, the large marketing tech and vendor sites are constantly looking for the next ad tech acquisition. Ad tech not only empowers the buying and selling of digital ad space on ad networks and exchanges, but it also includes analytics, data management platforms and other digital tools, which allow organizations to more effectively employ marketing campaigns that target specific audiences.
Social Reality is a leading provider of automated digital platform technology and social management software, for Internet and mobile advertising. Management has consistently grown revenues, from about $500,000, in 2010, to over $30 million, in 2015, an average annual growth rate (AAGR) of 170%, while typically running blended gross margins in the 45-55% range.
The Trade Desk is similar to Social Reality, in that its technology is designed to empower ad buyers by providing a self-service platform that enables their clients to manage data-driven digital advertising campaigns.
The same economic dynamics that should benefit the ad tech sector go a long way in explaining why the financials have become the S&P 500’s best-performing sector since the election. Underwriters, like Goldman Sachs and JP Morgan Chase, should see a noticeable increase in IPOs and merger and acquisition activity.
2016 is tracking to finish with 121 completed IPOs, which is just ahead of 2008 and 2009, but only 1/3-1/2 of the typical recent years’ volume.
J.P. Morgan and Goldman Sachs are leading an underwriting group for the trivago NV, the travel web search booking website, IPO set for the 15th of December.
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