In a sweeping sell-off, shares of publicly traded online ad technology stocks plunged to or near their all-time lows on Friday in what appears to be a major market correction on their prospects. The sell-off, which impacted all of ad tech’s IPO rookies -- including Tremor Video, Rocket Fuel, YuMe and Criteo -- followed the release late Thursday of tepid third-quarter earnings for Tremor and an even more dour fourth-quarter outlook.
“It would appear that investors became nervous around the lofty valuations underpinning many, if not all, of the companies whose businesses are dependent upon ad-tech,” Pivotal Research Group analyst Brian Wieser wrote in a report analyzing the sell-off. “So far it has appeared to us that most investors have not paid particular mind to competitive issues on the companies, which have recently gone public, and so it is safe to say that valuations have not reflected these factors to date.”
Wieser went on to suggest that the concern of investors “will probably get worse,” especially for online video ad nets like Tremor and YuMe, as big advertisers rally around the major video players -- especially Google’s YouTube. Wieser cited Google’s recent agreement with Nielsen to begin tagging ad campaigns running on YouTube so their audiences can be measured via Nielsen’s Online Campaign Ratings service (see related story in today’s edition), as a factor that could make it harder for third-party online video ad networks to compete.
Shares of Tremor Video lost about half their value following the company’s third-quarter earnings announcement Thursday, closing Friday at $4.72 a share on record volume.
“I think it's important to see the forest through the trees,” Tremor President-CEO Bill Day advised during a call with analysts following the release. He cited the long-term trends such as the consolidation of planning and buying of TV and online video, but implied that was also a factor in Tremor’s near-term results.
“Our third-quarter and fourth-quarter revenue growth rates are being impacted by a couple of factors,” he said, adding: “We believe that the biggest impact was driven by the delayed resolution of the fall TV upfronts, which stalled online video planning. This affected our results in September and we expect a more substantial impact in the fourth quarter. In addition, many of these upfront TV deals bundled TV buys with video from the associated TV extension sites reducing demand for our premium video offerings.”
Day told investors those issues were “temporary” and predicted that “by this time next year, TV upfront buying will extend beyond TV extension sites since these sites don’t provide the required skill TV providers need long term.”
While Pivotal’s Wieser said there likely will be “something of a rebound” for the online ad tech stocks that got pounded Friday, he was less optimistic about their long-term potential due to vast competition from companies “outside of the view of public investors,” meaning other privately held, venture-backed start-ups that also compete with the publicly traded companies.In other words, they face competitive pressure from big players like Google and conventional TV networks on the high end, and a long-tail of endemic players in the ad tech marketplace.