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Just when you thought it might be a while before another sector gained as much attention and excitement as what we witnessed this year in 3-D printing and its evolution, think again. Ad-tech companies with programmatic and algorithmic platforms are transforming the way in which advertisers reach their audience via mobile and video and thus I thought I would highlight a few newcomers to a space that's catching fire and changing the way companies choose to advertise.
Rocket Fuel Inc. (FUEL) - NasdaqGS
Rocket Fuel, which has an artificial-intelligence based automated decision-making platform for online advertising, exploded out of the gates when the company went public last September, with shares nearly doubling to around $60 the day of the company's IPO. Rocket Fuel's Q3 2013 earnings later in November did not meet many investors' expectations however and FUEL shares were consequently dumped back into the market, sending the stock crashing below $40. Since then we have seen FUEL share price inch its way closer to the range we saw around the time of the company's IPO, as investors appear to be optimistic about Rocket Fuel's forthcoming end of year results.
Per a Rocket Fuel-commissioned study conducted by Forrester Consulting earlier this year, the company's programmatic media-buying platform has yielded an average return on investment (ROI) increase of 229% and 192% for agencies and advertisers respectively over a three-year period. What's more, Rocket Fuel has sustained annual revenue growth for the years ended December 31, 2010, 2011 and 2012 of $16.5 million, $44.7 million and $106.6 million, respectively, which is all together good for a compound annual growth rate (OTCPK:CAGR) of 154%. Named #1 on the 2013 Deloitte Technology Fast 500 list despite the fact the company isn't expected to turn a profit until 2015, Rocket Fuel's FY 2013 results will be one of the most eagerly anticipated 10k's for ad-tech investors.
YuMe, Inc. (YUME) - NYSE
YuMe, a provider of digital video brand advertising solutions whose proprietary technologies enable brand advertisers to find and target audiences across a range of Internet-connected devices and digital media properties, has experienced some growing pains after going public as well. After its IPO was priced at $9 last August, YUME shares have plunged 11% as the company's stock, like Rocket Fuel's, felt some sell-off pressure as a result of its Q3 2013 earnings in November. YuMe reported in that 10Q a net loss of $0.6 million, or a $0.03 net loss per share, but also provided a silver lining in 39% revenue growth to $36.2 million when compared to the same quarter last year.
There are other key measures to consider when comparing YuMe's Q3 2013 results with its Q3 results from last year, such as its advertising customer base grew 45% to 336, gross margin rose from 39% to 47.5% and adjusted EBITDA remained flat at $1.6 million. On the heels of these results, YUME shares have climbed 22% to around $7.80 today. With the company projecting $57.4 million to $60.4 million in revenue and an adjusted EBITDA of $5 million to $8 million in Q4 2013, as well as sales of $154.5 million to $157.5 million in FY 2013, it will be interesting to see if YuMe is able to meet its expectations and ascend back to the level of its initial $9 IPO price.
Criteo SA (CRTO) - NasdaqGS
Criteo, a technology company that enables e-commerce companies to leverage large volumes of granular data to engage and convert their customers, is one of the latest entrants in the public ad-tech scene. Unlike FUEL and YUME, CRTO shares rose and have mostly held steady after the company closed their IPO with a price at $31 per share this past November, with CRTO hovering around $35 since then. On the other hand, like Rocket Fuel and YuMe, Criteo also demonstrated some solid performance indicators when comparing its Q3 2012 results with its November Q3 2013 results, its client base grew 62% to 4,631, sales rose 57.8% to $153.13 million and adjusted net income improved 97.2% to $6.59 million. What's more, the company added 5 additional markets last quarter, raising their number of geographic markets worldwide to 42.
Criteo's 25-day quiet period for underwriter research reports was completed last month and the company's underwriters, including J.P. Morgan, Deutsche Bank and Jefferies & Co. are expected to release positive research reports that could, along with solid year end results, boost CRTO share price past the mid $30 range we've seen for the past month. In a recent interview with the Street.com, Jean-Baptiste Rudelle, CEO of Criteo, talked about the holiday season having a substantial impact on the company's upcoming numbers, stating, "During Cyber Monday, you know, we can grow by a factor of two or three for the amount of volume for a given client". Given Criteo's expanding client base, this is certainly a factor for investors to consider.
Adaptive Medias, Inc. (ADTM) - OTC BB
Here's a speculative ad-tech play that has been recently covered in a couple of Seeking Alpha articles here and here. Adaptive Medias, a multi-channel audience and content monetization company that provides programmatic advertising across mobile, video and online display, may not be a household name like Rocket Fuel, YuMe and Criteo, but it did have a bit of interesting news arrive this week. The company, which was a privately-held entity acquired by Mimvi Inc. (former ticker: MIMV) in July 2013 and eventually became the name of the company itself, just closed the acquisition of Ember, Inc., a Real-Time Bidding (RTB) platform that leverages machine learning algorithms and contextual and semantic engines to bring more transparency to online advertising placements. What's interesting about this acquisition is the fact that Howard Marks comes along with the deal as an advisor. His being the Co-Founder of Activision Blizzard, Inc. (ATVI) sure doesn't hurt and obviously he likes what he sees, especially as he gave a thumbs up to the all-stock acquisition.
As a result of the acquisition, Adaptive's early customers and partners now include 24/7 Media (a WPP Company), Hearst Media Group, BlueTonic, Videology, Hotpoint Media, Vdopia, 7 Diamonds, SpotExchange, TubeMogul, Yashi and Adap.tv, a division of AOL Networks (AOL). Along with its November Q3 2013 results, in which Adaptive reached $373,737 in top-line revenues, up from $27,314 in Q2 2013 and $0 in Q3 2012, the company is looking like a potential up-and-coming player in the ad-tech space. Although this an extremely competitive ecosystem we are talking about here with Google (GOOG) being the big fish in the pond, we have seen new players like Rocket Fuel and Criteo create and build value that have ultimately enabled them to contribute to the fast growing ad-tech space. Adaptive Medias is definitely a speculative play, but one maybe worth considering with its potential upside as a low market-cap company in the public ad-tech arena. The company's largest shareholder has faithfully supported the stock at .075 in buying millions of shares of straight equity and there's no sign his plans have changed.
Exciting news for tech investors hit late last week when the online-advertising company, The Rubicon Project Inc., selected Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) to lead its initial public offering estimated for sometime in 2014. Rubicon, which automates the buying and selling of advertising, has a larger reach regarding U.S. Web users than Google Inc.'s ad network, surpassed $100 million in sales three years ago, and is profitable.
The Ad-Tech sector is rapidly becoming a very hot space and it won't surprise me if it soon receives as much attention as the 3-D printing sector did when it exploded earlier this year. I would urge caution to those venturing into this space without executing research, but there will undoubtedly be big winners in the sector. Revenues in the companies mentioned above have exploded, so I will be watching carefully as to what companies I think can grow into their fast-rising valuations.