Marin Software Inc. (NYSE:MRIN) stock may be in a precarious position and may present aggressive investors with a shorting opportunity. A number of factors underlie this thesis:
LOCK UP EXPIRATION
On September 18, 2013 the lock up period expires on 23,411,322 shares for Marin Software insiders and major shareholders.
These major shareholders include five different venture capital and private equity firms that together hold 13,127,687 shares and the executive officers and directors own 8,507,173. Investment firms are under pressure to return capital to their investors after the drought created by the great recession. The executives and directors may also want to sell some of their shares for diversification reasons. (See also our recent published story on Model D (NYSE:MODN) and Silver Springs Networks (NYSE:SSNI), which provided our readers with good shorting opportunities.)
Marin Software offers an online platform to manage revenue acquisition for advertisers and ad agencies, managing over $5 billion per year in ad spend. Its platform handles search, display, social, and mobile advertising in an integrated format. The online advertising market is very competitive and expanding rapidly, having grown some 15.1% over the course of the past year, providing MRIN with many opportunities to expand its operations. MRIN seemingly has taken advantage of those opportunities with an $18.2 million year-over-year increase in revenues (a 30% increase).
Marin Software's successful March IPO, in which the company raised $105 million by selling 7.5 million shares and beating its expected price range of $11-$13 with a price of $14, seemed to presage a strong value in the stock. However, a brief honeymoon period during which the stock traded around $20 proved to be a mirage, as the stock plummeted beneath $9 within mere weeks of the IPO after its first quarterly earnings report disappointed its shareholders. It is unusual and a very bad sign for a new public company to miss estimates so soon after an initial public offering especially after it gaps up on the first day. The stock still hovers over 10% below its offering price, which raises the question of what might occur if the company were to have another bad quarter.
So why has MRIN failed to convince the market of its worth? It suffers from the same problem as every other ad tech company on the market: it must compete with Google (NASDAQ:GOOG). Google controls over 40% of the entire online ad industry, and, far worse, is perhaps the most recognizable corporation on the planet. Few investors are willing to bet against Google, and even fewer have done enough research to understand that Marin is actually a beneficiary of Google's success - the Marin platform supports both Google's Product Listing ads and Enhanced Campaigns, along with Facebook's (NASDAQ:FB) homepage, mobile, and newsfeed ads. Marin's revenue numbers indicate that its business operations haven't suffered from Google competition, but its dismal stock prices reveal a deep lack of investor confidence.
That lack of confidence is likely to continue and even grow worse with recent media coverage on the supposedly crushing competition Google presents. Bloomberg released a devastating report on August 8th detailing Google's dominance of the ad tech market and the recent failures of ad tech IPOs. MRIN had the dubious honor of being mentioned by name, which will no doubt keep its price depressed for as long as potential investors continue to find the article in the course of basic research.
MRIN isn't the only stock suffering from this phenomenon; numerous ad tech companies have seen disappointing IPOs in recent months. YuMe Inc. (NYSE:YUME), a video ad company, landed at an offering price of $9, 25% beneath the low end of its $12-$14 expected range in its August IPO. Tremor Video (NYSE:TRMR), which reported a 40% Q2 revenue increase that blew away expectations, nonetheless suffered an IPO that priced at $10, a dollar beneath the expected range of $11-13. TRMR proceeded to fall as low as $6.81; despite continued strong numbers, the stock still sits at $9.
Ad tech companies considering IPOs have pulled them off the table. Exponential Interactive, a parent of the wildly popular Tribal Fusion web ad company, refuses to set an IPO in light of market conditions. Adap.tv, another video ad company, chose to throw in the towel rather than face the brutal ad tech market, accepting a low $405 million offer from AOL, (NYSE:AOL) on August 7th.
Disclosure: I am short MRIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article was written for informational purposes. Investors should read the S-1 and consult with their financial adviser before making any investment decisions.