Online Ad Firms’ Stocks Slump Despite Revenue Gains

Higher operating costs partly to blame

Many online advertising firms are struggling in the wake of falling stock prices, as reported by The Wall Street Journal, even though global spending on online ads is expected to climb 25 percent this year, according to eMarketer, and will represent 39 percent of total ad spending in the U.S.

Some of the young, publicly traded companies that are not reaping the benefits of that growth are Rocket Fuel, down 73 percent since January; YuMe, down 38 percent; Tremor Video, 46 percent; and Millennial Media, 66 percent, the Journal reported. Even Rubicon Project, a company in which Journal owner News Corp. owns a 13.7 percent stake, is down 27 percent from its $15 initial-public-offering price in April.

Some of the companies attribute the loss to the significant expense for automated solutions, among other investments. "Research-and-development [costs] increased 65 percent year over year as we accelerated our investments in existing product and emerging programmatic initiatives," according to YuMe CEO Jayant Kadambi.

Some industry experts have suggested that the investors funding these companies don't fully understand the complexity or expense of the online ad market, specifically the programming required to automate the ads. Each of the struggling ad companies plays its own role in improving and innovating the programmatic elements.

"It's a confusing market," Frank Addante, founder and CEO of Rubicon Project, told the Journal. "I liken it to the early days of Silicon Valley. If you were an investor back then, you didn't know what was going to be valuable."

Another factor is the fierce market competition. Smaller, younger companies are finding it difficult to keep up with the larger conglomerates, such as Google. In fact, some of the big online players, including AOL, Adobe, Oracle and Salesforce, are purchasing online advertising products—and sometimes even acquiring the smaller companies themselves—with the goal of building fully automated solutions.