Wall Street has its eye on the programmatic sector -- but according to Youssef Squali, head of Cantor Fitzgerald's Internet & media equity research, many ad-tech companies are stuck in the “penalty box,” with investors becoming more demanding and newish IPOs missing expectations in the second and third quarters after they went public.
Still, for 2017, Wall Street is eyeing more ad tech IPOs: for example, AppNexus, Moat, and Videology. It also expects more consolidation in the ad tech/martech sectors.
Speaking at AdExchanger’s Programmatic I/O conference on Thursday, Squali even conjectured that comScore could be acquired by Adobe, and said he wouldn’t be surprised if Alphabet (Google) would acquire Twitter next year.
While programmatic came out as a force in 2013 on Wall Street with ad tech firms like Criteo, TubeMogul, and Rocket Fuel, among others, getting a “pretty decent” reception on the Street, those firms didn’t meet expectations in 2014/2015. “Investors became more demanding in general, and these fresh IPOs missed expectations in second and third quarters after they went public -- and that’s a no-no,” Squali said.
“Now, many ad-tech companies are stuck in the penalty box, where investors don’t really care,” he said, adding that only ad -ech stocks Criteo and The Trade Desk are trading above IPO prices.
Growth is an extremely important metric for Wall Street: “You need measured growth, a clear path to profitability, and you need to exceed profitability expectations for most quarters after an IPO,” Squali said.
For The Trade Desk, it’s too soon to tell, but the company must exceed Q3 expectations when it reports earnings. The stock has been trading around $28 per share. “They need to sustain this and report better than expected numbers,” Squali said. “If they do, the IPO will work. And if The Trade Desk IPO works, it opens the door for other IPOs to go next year—like Snapchat, Slack, AppNexus, and Spotify, among others,” he said.
Squali said that the programmatic landscape is very confusing to Wall Street. There are too many players, for one thing: supply-side platforms, demand-side platforms, data management platforms, agency trading desks and ad exchanges. “It’s a crowded ecosystem,” Squali said.
“Usually the simpler the proposition, the more attractive to Wall Street. The programmatic ecosystem needs to be simplified. We need more transparency and accountability,” he said, adding, “We’ve been hearing this for years, but not much has happened.”