Based on its valuation and growth profile, Marin Software — a provider of a cloud-based digital advertising management platform — could be an attractive buyout target for a larger player in the online marketing space.
At the recent market cap of $373 million, Marin’s forward revenue multiple of 3.9 times the 2014 consensus estimate of $95.8 million (within the company’s guidance range of $95 million to $96.6 million) is reasonable given expected growth of nearly 24 percent.
Marin is a so-called busted IPO because the shares trade below the March 2013 offering price of $14. In fact, Marin shares have been on a downward trek ever since the first trading session: they opened at $18.95 and hit a post-IPO high of $19.95 on the same day. While the stock has recovered a bit from the November low of $8.50, it’s still 18 percent short of the IPO price.
Measuring Ad Spend
Advertisers are increasingly focused on performance-based marketing, so they’re always looking for ways to pull together and analyze data about the effectiveness of digital ads in order to run more targeted and impactful campaigns. Marin’s Revenue Acquisition Management (RAM) platform is used by advertisers and ad agencies to measure, manage and optimize digital ad spending across search, display, social and mobile channels.
Using the RAM platform, customers can measure the effectiveness of their ad campaigns via its reporting and analytics capabilities; manage and execute campaigns (including ad creation and bidding across multiple publishers and channels); and optimize campaigns in real-time based on market and business data to achieve desired revenue outcomes using predictive bid management technology.
Marin’s platform integrates with leading publishers (Google, Facebook, Yahoo, Bing and Baidu), web analytics offerings, ad-serving solutions and key enterprise applications. It basically acts like a system-of-record for ad performance, revenue and conversion data; it enables advertisers to correlate spending to subsequent revenue outcomes and business events.
Using a single interface that handles the daily workflow requirements of online marketers, customers can simultaneously run large-scale digital ad campaigns across multiple publishers and channels. This makes it easy for marketers to create, publish, modify and optimize campaigns on the fly.
Marin’s predictive bid management and optimization technology also allows advertisers to forecast outcomes, as well as rapidly shift more dollars into campaigns, publishers and channels that are performing well.
Today, 90 percent of Marin’s revenue is generated within the overall $45-billion paid search market, part of the estimated $100-billion online ad market. In fact, the company is the largest aggregator worldwide of paid search ads. Among the various types of customers on the Marin platform, hotels use it to fill more rooms, software companies to generate more leads and online universities to get more students enrolled.
Marin’s business model is based on subscription fees tied to ad volumes on the platform. While competitor Rocket Fuel, which has seen its shares skyrocket 86 percent just since the September 2013 IPO at $29, provides managed services and arbitrages (marks up) media, Marin customers operate on the platform themselves and pay for ads directly.
Marin has a tiered fee structure for customers based on size: 4 percent for the smallest advertisers, stepping down to below 1.5 percent for the largest. Customers manage about $6 billion in annualized ad spend on the platform. More than 25 percent of ads are targeted to mobile devices. Marin in 2013 boasted a 97 percent customer retention rate. The average contract length is 14 months.
In Q4, Marin’s revenue rose 28 percent to $21.8 million, beating the Wall Street consensus estimate of $21.2 million. As of the end of 2013, there were 673 active advertisers (customers spending $2,000 in at least one month of the latest quarter) on the platform, up 26 percent from the year-ago level and a 72 percent increase from the end of 2011.
Growing Display, Social Ads
More qualified sales reps closing more business drove growth in Q4. Marin was also able to improve attach rates with existing customers and expanding paid search to other offerings. While display and social ads are still a small piece of Marin’s business, management expects them to become more meaningful contributors over time.
Facebook ad spending managed on the platform in Q4 jumped 50 percent sequentially. Another growth area: Product Listing Ads (image ads embedded in search) are performing much better than expected since they were rolled out on the platform a year ago, helped out by strong conversion rates.
Marin competes primarily with free tools offered by publishers (such as Google and Facebook), other platforms (the biggest players: the Omniture unit of Adobe Systems and Google’s DoubleClick) as well as internal systems operated by enterprises.
About the Author
Robert DeFrancesco is a seasoned tech-stock analyst, who, for 13 years, covered the technology sector for Louis Rukeyser's Wall Street newsletter. In 2003, he launched Tech-Stock Prospector, a unique investment research service utilizing a combination of fundamental and technical analysis to identify and capitalize on inefficiencies within the tech-stock sector.
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