Marin Software Positions for First Ad Tech IPO of 2013

Profit-challenged company may benefit from B2B focus

AppNexus and DataXu may have elicited hearty applause in the last few weeks for raising sizeable private funding rounds, suggesting that ad tech’s financial picture is just fine, but the true test may come later this year in the public market.

The search advertising technology firm Marin Software filed for a $75 million initial public offering on Wednesday afternoon, marking the first ad tech outfit positioning to go public in what many expect to be an IPO-and-acquisition-frenzied 2013.

However Marin’s lack of profitability may hurt its prospects. The company has yet to book an annual net profit since its 2006 launch—losing $17.4 million in 2011 and $19.2 million through the first three quarters of 2012—and warned prospective shareholders that may continue to be the case. “We do not expect to be profitable in the foreseeable future and we cannot be certain that we will be able to attain profitability on a quarterly or annual basis, or if we do, that we will sustain profitability,” the company stated in the regulatory filing.

That may be enough to scare off investors still shaken by Groupon’s and Zynga’s stock woes since going public. Groupon had yet to turn a profit by the time of its IPO, and Zynga has been on an infamously slippery slope. But those companies were consumer-facing whereas Marin sells its software and services to businesses. As LinkedIn has shown quarter after quarter, Wall Street likes business-to-business companies.

Marin may also be aided by robust revenue growth, including 14 straight quarters of it. Through the first three quarters of 2012, the company had improved on its comparable 2011 revenue numbers by 72 percent year-over-year, hitting $42.5 million by the end of the third quarter. Traditionally a search advertising business, Marin has been expanding its capabilities into display, social and mobile, the latter two lines are the company’s most emerging revenue streams and thus harbor big growth potential. The mobile ad business in particular could benefit from Google’s recent AdWords changes that may lead to higher overall mobile ad prices—of which Marin could theoretically take a proportionally higher cut. Marin said in the filing that “a substantial majority” of its customers use its platform to manage AdWords campaigns.

Marin lists Macy’s, Charles Schwab, MediaCom, Omnicom, Razorfish and ZenithOptimedia among its 502 active advertisers, but did not state how much advertising spend funneled through its platform in 2012. However $3.2 billion in ad dollars flowed through Marin in 2011, the company projected based on how much money it managed in December of that year. That’s almost twice as much as the $1.7 billion in annualized ad spend it saw in 2010. No customer accounted for more than 10 percent of the company’s revenue through the first three quarters of 2012. So if Macy’s (or any other customer) were to hypothetically switch to Adobe tomorrow, Marin should be alright.