Murmurs have circulated in recent weeks that several ad tech companies are preparing initial public offerings, contributing to the most robust IPO market in five years.
Adweek spoke with several analysts in the space to gauge if the recent reports indicate a repeat of past investment crash-and-burn bubbles, or whether the industry is entering a new period of substantive value and growth.
This past week, Bloomberg reported DoubleVerify is preparing for an IPO with the content verification company reportedly seeking to raise $500 million, with a valuation of $5 billion.
And in early October, CNBC reported that AppLovin—a $2 billion company that has ad tech lineage, but has increasingly shifted to mobile gaming—appointed Morgan Stanley to make preparations for an IPO expected in 2021.
Echoes of the early 2010’s
Such dramatic activity in rapid succession struck investment analysts with surprise, as the fairly recent performance history of ad tech in financial markets is not one that’s littered with success.
The Trade Desk’s market capitalization topped $30 billion this week, an exceptional success story. By comparison, the market cap of the industry’s individual major holding groups averaged closer to $10 billion.
The first decade of the century saw venture capitalists shower the ad-tech sector with funding as they all sought ‘the next Google’ and in the early 2010s the sector saw a slew of IPOs between 2012 and 2014 in the U.S. markets (see below).
Company IPO Year Current status
- Millennial Media 2012 Sold to AOL (now Verizon Media) in 2015
- YuMe 2013 Sold to RhythmOne (now part of Taptica) 2017
- Tremor Video 2013 Split with half sold to Taptica in 2017*
- Rocket Fuel 2013 Sold to Sizmek in 2017, and now Zeta Global
- Criteo 2013 Still trading publicly
- Rubicon Project 2014 Merged with Telaria in 2020, now called Magnite
- TubeMogul 2014 Sold to Adobe in 2016
- The Trade Desk 2016 Still trading publicly
*Remaining half rebranded as Telaria and merged with Rubicon Project
Arbitraging Media ≠ Unicorn Status
Sources told Adweek that each initially basked in the glow of “the new,” with many comparing them to Google but they were soon found out.
Terence Kawaja, CEO of investment bank Luma Partners, told Adweek many of these companies were simply media resellers or ad networks, a phenomenon that still exists to this day, whose value proposition was questionable.
“That earlier wave of ad tech IPOs was primarily led by what we would call a ‘1.0 cohort’ of ad network companies that relied on a media arbitrage business model,” he said. “These companies did not fare well with the rapid migration towards [actual] programmatic ad buying.”
It’s likely that many of these companies may have been forced to IPO before their ad tech was actually ready for public scrutiny by VC’s eager to see an ROI, or “liquidity moment.”
Back in 2013, not many people knew a thing about ad tech. I mean, most investors didn’t know how to spell ‘DSP.’
Brian Wieser, global president business intelligence, GroupM
Meanwhile, Brian Wieser, global president business intelligence at GroupM, and a former equities analyst, suggested the initial honeymoon period between Wall Street and programmatic players was largely fueled by an ignorance of ad tech. The halo effect of other “tech stocks,” such as Facebook which IPO’d in 2012, also played a role in investors’ previous ardor for ad tech stock offerings.
“The market couldn’t distinguish one from the other,” Wieser said, commenting how some of the “1.0 cohort” actually had differentiated, valuable technology, while others simply did not.
“Back then in 2013, not many people knew a thing about ad tech,” Wieser added. “I mean, most investors didn’t know how to spell ‘DSP.’”
More Failure Than Success
Multiple sources maintained the “1.0 cohort” were too quick to go to market. Among other things, the ad tech entities that pursued the IPO path typically generated revenues well below $1 billion per year. As such, they were too low to attract institutional buyers. As a result, once these ad tech players failed to hit their projected earnings figures, it was difficult to recover.
Adding more recent fuel to the fire were damning reports in the financial press about ad fraud, the growing dominance of “Big Tech” and impending privacy legislation.
Additionally, several ad tech companies that had sought to go public, including Adform, AppNexus (now part of AT&T’s Xandr after its 2018 sale), PubMatic and Quantcast, elected to pause IPO plans, if not outright abandon them.
Exceptions & SPACs
While ad tech’s wild ride on Wall Street appeared over, The Trade Desk remained an outlier after its 2016 debut on the open markets. By contrast, Criteo’s stock was pummelled by concerns over major platforms’ privacy provisions, and Rubicon Project likewise experienced a tough transition under its current leadership.
For Jay C. MacDonald, CEO and managing partner of Digital Capital Advisors, The Trade Desk’s lofty valuation is likely a result of its willingness to seize first-mover advantage. MacDonald cited The Trade Desk’s willingness to invest in China, as well as its push into the connected TV market.
“The first thing you need to do is build trust with your customers [in the ad business],” MacDonald said. “And from there, you can start to build trust with the Street; The Trade Desk has done a phenomenal job of that.”
Meanwhile, Luma Partners’ Kawaja said it’s possible for ad tech to tap public markets if they can demonstrate sustainable advantage. In particular, if they can position themselves as software companies, as opposed to being viewed merely as ad networks with hard-to-forecast revenue streams, investors will regard them as more attractive offerings.
All sources consulted in the research of this article said AppLovin and DoubleVerify will have to emphasize their wares in the potentially lucrative mobile gaming development and CTV spaces if they are to hit ambitious goals set by their private equity-backers.
One investment analyst who requested anonymity due to their employer’s PR policies, said, “Right now, both companies are in hot spaces. When you have the likes of The Trade Desk setting an example, it can be a way of showing investors they won’t necessarily get burned.”
Sources we talked with believe that ad tech companies valued at under $1 billion may attempt a “reverse IPO” or use a special-purpose acquisition company in order to raise funds from the public.
This process alleviates a lot of the pain involved with launching on the public markets. It is how Martin Sorrell founded both WPP and his current venture S4 Capital, and have proven popular for companies to acquire late-stage growth capital in 2020.
“I think you’ve got the likes of Applovin and DoubleVerify that have the pedigree to do [a traditional IPO], but I don’t think you’re going to see the floodgates open like in 2013 with the sub-scale ones it could be about [special purpose acquisition vehicles],” said DCA’s MacDonald, referring to SPACs, which are companies that file an IPO in order to raise capital for the sole purpose of acquiring an existing company.