Much has been made about the absolute failure of the recent advertising-related tech IPOs. As a prime example, the last week of June had one of the worst IPO pricing weeks in history. In fact the pricing conditions were so bad that for the first time in 15 years, five IPOs priced below the original suggested midpoint on the same day. Guess which stock led the weakness on that day?
Amazingly, the fast growth of Tremor Video Inc (NYSE:TRMR) wasn’t enough to offset the weakness from previous advertising-related failures. With the recent collapse of Marin Software Inc (NYSE:MRIN), it probably wasn’t possible for Tremor Video Inc (NYSE:TRMR) to get a fair shake, especially considering the high-profile drubbing that Millennial Media, Inc. (NYSE:MM) had endured over the last year.
While all three stocks focus on different sectors in the shift to digital advertising whether via mobile or videos, all of those stocks share fast growth and weak stocks. Possibly the most shocking of the IPO pricing was the fact that Tremor Video Inc (NYSE:TRMR) recently reported 53% revenue growth in the in-stream video advertising network. So why are investors avoiding the stocks and the sector if growth is that good?
In fact, anybody reading the constant forecasts by eMarketer knows that both mobile and video related online or digital ads are growing at very fast clips. Even more surprising are the valuation metrics of this group. If these were cloud-based software stocks, the group might command valuations at multiples of the current levels.
Online ad tools
Marin Software Inc (NYSE:MRIN) provides a cloud-based digital advertising management platform. Due to the complexity of managing the multiple advertising options, including multiple mobile operating systems and thousands of different devices, the Revenue Acquisition Management platform provides a management solution for search, display, social media, and mobile advertising. For now, search is the dominant revenue sector, but clearly social and mobile are commanding a larger focus going forward.
The stock plunged from a high of $20 on the initial trading day back in March to below $10 by May. The current market value of $400 million is roughly four times the expected revenue of nearly $100 million in 2014. Analysts expect the company to be significantly in the red for a few years, but the company expects profits by 2015. The cash hoard of $115 million should allow the company time to grow into a profitable machine, but most investors will be keen to watch that Marin Software Inc (NYSE:MRIN) remains on a reasonable path to profits.