Growth Trends in Digital Media

October 20, 2014

Agenda
I.

Market Overview

II. Digital Growth Drivers

III. Summary Thoughts

I. Market Overview

U.S. Equity Market at a Glance

U.S. Market Index Performance
100.00%

80.00%

2013 2014 YTD

Performance of Internet Bellwethers

+30%

+0.8%

+38%

+0.9%

Market Value 2014 YTD Since 2008

+27%

-2.6%

($ in billions)

60.00%

$362

(4%)

56%

141

(23%)

230%

38

(6%)

63%

62

(8%)

51%

203

34%

NA

211

26%

NA

40.00%

20.00%

0.00%

Recent Downward Correction/DJIA down

4.0% in last two weeks

(20.00%)

Ebola outbreak concerns

(40.00%)

ISIS, Ukraine and Israeli conflicts

Plunging oil prices

(60.00%)

Source: Capital IQ, as of October 16, 2014.

4

Global IPO Volume

($ billions)

Issuances are up in all geographies

The US IPO market has been particularly
active

$234.4

66%

$137.0

$135.9

$106.0

$99.6

33%

42%

20%

51%
64%

12%

19%

10%

16%

25%

40%

38%

2010

2011

2012

2013

6%
21%

2009
United States

Latin America

Europe

Source: Capital IQ; Renaissance Capital; Annual Global IPO Reviews.

5

Asia/Pacific

$90.6
28%
40%
31%

1H 2014
Africa/Middle East

Digital Media Equity Market Performance

Performance has been very mixed: 82% of all Digital Media stocks this year
50% of all Digital Media IPOs this year
AdTech has struggled
Best Performing
Internet Titans

Best Performing
Digital Marketing

Best Performing
eCommerce

Worst Performing
Overall

+43%

+47%

+95%

-75%

+24%

+50%

-74%

+22%

+31%

+46%

-69%

Median Stock Price Performance of Digital Media Sectors

Median % Change
2012
2013
2014YTD
Digital Media
Internet Titans
Digital Marketing
eCommerce

+20.6%
+33.1%
(31.2%)
+23.4%

+59.7%
+87.4%
+29.3%
+80.5%

(9.4%)
(1.8%)
(26.1%)
(5.6%)

Market Indices
S&P 500
Dow Jones
Nasdaq

+13.4%
+7.3%
+15.9%

+29.6%
+26.5%
+38.3%

+0.8%
(2.6%)
+0.9%

Digital Media Sector IPO Performance

($ in millions)
Date

Company

Subsector

2014 (12)
Sep 18
Jul 18
Jul 17
May 21
May 19
Mar 21
Apr 04
Mar 25
Apr 02
Mar 06
Mar 28
Jan 24

Alibaba Group Holding Limited

Globant S.A.
TubeMogul, Inc.
JD.com, Inc.
TrueCar, Inc.
Borderfree, Inc.
GrubHub Inc.
King Digital Entertainment plc
The Rubicon Project, Inc.
Coupons.com Incorporated
Everyday Health, Inc.
Care.com, Inc.

eCommerce
Digital Agency
AdTech
Social
eCommerce
eCommerce
eCommerce
Digital Content
AdTech
eCommerce
Digital Content
eCommerce

IPO Size
$21,767
59
44
1,780
70
80
193
500
102
168
100
91

$167,620.4
333.5
200.8
25,974.6
639.3
487.6
1,934.0
7,086.0
520.7
1,170.7
415.5
505.7

101

580.0

253
1,820
251
116
46
191
75
81
79
105
21

2,685.4
14,162.1
1,714.2
942.3
286.2
1,054.3
494.2
286.6
465.2
432.8
29.1

2013 Median

105

Overall Median

102

2014 Median

2013 (11)
Nov 14
Nov 06
Oct 29
Sep 19
Aug 06
Jul 18
Jun 26
May 22
May 16
Mar 21
Mar 04

zulily, Inc.
Twitter, Inc.
Criteo SA
Rocket Fuel Inc.
YuMe, Inc.
RetailMeNot, Inc.
Tremor Video, Inc.
ChannelAdvisor
Marketo, Inc.
Marin Software
Professional Diversity

Market Cap
@ IPO

eCommerce
Social
Ad Tech
Ad Tech
Ad Tech
Retail
Ad Tech
eCommerce
Marketing Auto
Digital Marketing
Social

Source: Capital IQ, as of October 16, 2014.

7

Price Performance
Day 1
Since IPO
38.1%
15.1%
64.3%
10.0%
5.6%
20.4%
33.8%
(15.6%)
32.3%
87.5%
(0.1%)
46.5%

25.9%
32.1%
58.1%
27.9%
130.0%
(33.4%)
42.2%
(49.4%)
(35.8%)
(15.3%)
(19.2%)
(52.0%)

26.4%

5.3%

63.7%
72.7%
14.2%
93.4%
0.0%
31.9%
(15.0%)
31.7%
77.7%
16.1%
(4.1%)

72.8%
92.3%
(4.8%)
(41.9%)
(46.2%)
(15.0%)
(77.2%)
(0.7%)
126.9%
(33.8%)
(46.1%)

494.2

31.7%

(15.0%)

520.7

31.7%

(15.0%)

Digital Media Companies Going Public Today Have

Higher Growth Profiles/Reasonable Valuations
Public Comp Universe at End of 2012
12-13 Revenue Growth
2012
Revenue
Multiple

2014 Digital Media IPOs

14-15 Revenue Growth

EBITDA
Margin
48.3%

Millennial Media Inc.

ValueClick, Inc.
ChannelAdvisor
Corporation

ReachLocal, Inc.

24.2%
23.0%
21.0%

76.1% 2.5x

NM

2.5x

35%

13.8x

44.2%

42.1%

NM

2.8x

21%

EBITDA
Margin

1.7x

NM

1.2x

NM

3.5x

NM

5.9x

8%

19.5x

54%

3.5x

14%

2.8x

NM

10.8x

32%

2.1x

7%

2.2x

20%

2.3x

20%

1.6x

39%

2.5x

20%

35.8%

NM

0.6x

2014E
Revenue
Multiple

33.1%

32.1%

Constant Contact, Inc.

17.2%

29.7%

Bankrate, Inc.

10.8%

4.1x

28%
27.3%

QuinStreet, Inc.

(16.4%)

1.0x

6%

26.2%

21.0%

15.0%

Median:

22.0%

2.7x

24%

Source: Capital IQ.

8

Median:

32.1%

Global M&A Deal Volume and VC Financings

Global VC Financings ($ billions)

Global M&A Volume ($ billions)

$2,799

$2,351

$2,280

13%
26%

29%

$1,919

$278.6

$2,543

$2,511

32%
31%

$155.8

33%

23%
22%

$150.6
61%

$128.1
$115.5

21%

23%

24%
$82.5

22%

23%

39%
37%

39%

36%

45%

35%

29%

Latin America and Caribbean

Europe

Source: Capital IQ; Annual Global IPO Reviews.

YTD as of September 25, 2014.

35%

29%

27%

United States

38%

37%

16%

Asia/Pacific

18%

29%

Africa/Middle East

37%

Key Themes in the U.S. Digital Media M&A Market

AdTech Consolidation Continuesstill too many companies
Enterprise Software Giants Continue to Build Out their
Marketing Stack
A Few Traditional Strategics Get Digital Courage via M&A
Early M&A Deals in the Internet of Things
PE Firms Place $1 Billion+ Bets on Traditional Marketing
Services Businesses

10

Top U.S. Digital Media Deals YTD 2014

($ in Millions)
Implied Enterprise Value to LTM

Date

Acquirer

Target

Size

Revenue

EBITDA

Feb. 2014

$19,500

NA

NA

Apr. 2014

3,305

19.0x

NA

Jun. 2014

2,600

13.1x

52.4x

Sep. 2014

2,448

4.12x

12.4x

Aug. 2014

1,827

30.9x

11.6x

Sep. 2014

1,000

NA

NA

May 2014

1,000

32.3x

NA

Aug. 2014

970

NA

18x

Sep. 2014

950

NA

NA

Source: Capital IQ
11

Internet Titans M&A in 2014

Company

Mkt. Value ($bn)

# Deals in 2014

$40.7

28

$369.2

15

$37.6

12

$138.6

10

$69.0

$3.4

$181.5

Notable Deals

Machine Translation Technology

Division

Source: Capital IQ
12

Key 2014 Digital Investment Themes

Niche eCommerce and Content Companies Still Getting Funded

Companies Doing Record-Breaking Late Stage Financings as

Alternative to IPO

Ad Tech M&A Consolidation Fewer Ad Tech Startups Doing

Large Rounds

Data Analytics and Cloud Storage Continue to See Many New

Entrants

13

Notable 2014 Digital Private Financings

(a)

($ in Millions)

Date

Company

Sector

Investors

Size

Implied
Valuation

Jun. 2014

Mobile

$1,400

$18,400

Aug. 2014

Content

500

2,500

Apr. 2014

eCommerce

475

10,000

Mar. 2014

Mobile

285

1,100

Mar. 2014

Mobile

250

950

May 2014

Social

200

5,200

May 2014

Content

160

1,160

Jan. 2014

eCommerce

157

2,000

Jun. 2014

Content

150

2,300

Jul. 2014

Content

120

1,000

Jan. 2014

eCommerce

112

912

Mar. 2014

Ad Tech

100

NA

Sep. 2014

Mobile

100

6,000

Not Disclosed

Source: Capital IQ
(a) Selection criteria based on size and publicly available information.

14

II. Digital Growth Drivers

Sector

Mobile
Ad Tech
eCommerce
Marketing Automation

16

Mobile = Most Important Broad Theme in 2014

Global Installed Base

Average Timespend Per Day (minutes)

(in billions)

3.0

153

142

147

139

Desktops+Notebooks
Smartphones+Tablets
67 63

2.5

43 40

2013 Projected Inflection

Point
Mobile Usage > PC Usage

2.0

22

10

2010

12

2011

2012

Desktop/laptop

Smartphone

2013
Tablet

Source: eMarketer, Jul. 2013. US Data

1.5

Mobile Timespend is Spread Broadly

Other
Games 7%
8%

1.0
0.5

Email
9%

0.0

Browser
14%

2009

2010

2011 2012E 2013E 2014E 2015E

Talk
26%

Non-Talk Applications
= 70% Of Timespend

Text
20%
Social
16%

Note: Notebook PCs include Netbooks. Assumes the following lifecycles:

Desktop PCs 5 years: Notebook PCs 4 years; Smartphones 2
years; Tablets 2.5 years. Source: Equity Research, 2012. Global data.

Source: Experian Marketing Services. US Data

17

Mobile Scalability is Increasing Dramatically

Unprecedented Mobile Adoption Cycle
38

Time It Took to Reach 50 Million Users (Years)

13

3.5
0.5

Radio

TV

Internet

Source: Digital Buzz Blog, Extreme Networks

18

50
days

35
days

Mobile Starting to Dominate as Primary Social

Channel
Share of Time Spent on Mobile

88%
62%

July 2013
2013
April

92%

68%

July 2014
April
2014

July 2013
April
2013

July
April2014
2014

93%
72%

48%

15%

July 2013
April

April
July 2013

July 2014
April
2014

Source: DigiDay, 2014

19

April
2014
July 2014

Mobile is Becoming the Key Tool in Commerce

Mobile Influences Path To Purchase

90%
84%
1 in 3

Of Smartphone Shoppers Use Their Phone for Pre-Shopping

Activities

Of Smartphone Shoppers Use Their Devices to Help Shop While in a Store

Shoppers Use Their Smartphones to Find Information Instead of Asking Store

Employees

Mobile Increases Median Basket Sizes

50%

Increase in Health & Beauty

34%

Increase in Electronics

40%

Increase in Appliances

25%

Increase in Household Care

Source: Mobile In-Store Research, Google and Shopper Marketing Council.

20

Consumer Usage is Ahead of Mobile Ad Spend

% of Total Media Consumption

Time or Advertising Spending

% of Time Spent in Media vs. % of Advertising Spending, USA 2013

45%

Internet Ad = $43B
Mobile Ad = $7.1B

38%

~$30B+
Opportunity
in US

25%
22% 20%

19%
12%

10%

Consumer Time Spent

5%

Print

4%

Radio

TV

Ad Spend

Internet Mobile

Source: Mary Meekers 2014 Internet Trends, Advertising spend based on IAB data for full year 2013. Print includes newspaper and magazine.
$30B+ opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share.

21

Mobile Has Plenty of Room to Disrupt Traditional

Advertising and Retail
Mobile % of Time Spent vs. % Total Ad Spending vs. % Total Retail
25%

% of Total
Consumption

20%

20%

15%

10%
4%

5%

2%

0%
Consumer Time
Spent

Mobile Ad
Spending

Mobile
Commerce

Source: Mary Meekers 2014 Internet Trends, Advertising spend based on IAB data for full year 2013. Print includes newspaper and magazine.

22

$1 Billion+ Vertical Based Mobile Categories

Section/Leader

Competitors

Adjacent Verticals $BN Category

Utilities

Media &
Entertainment

2014 Highlights

Proliferation of the Uber

model
into
other
transportation-related
verticals

Pandora only non-game top 10

iPhone app of 2013
Pandora model replicated in
other content verticals

Messaging

Other privacy apps compete and

specialty messaging apps gain
traction
WhatsApp has >600mm active
users

Health & Wellness

Exercise gamification
Convergence of mobile &
wearables

Gaming

Top iOS app of 2013

9 of top 10 most downloaded
apps are in gaming

23

Select Mobile M&A in 2014YTD

(a)

($ in Millions)
Implied Enterprise Value to LTM

Date

Acquirer

Target

Size

Revenue

EBITDA

Feb. 2014

$19,000

NA

NA

Feb. 2014

900

594x

NA

May 2014

360

NA

NA

Jul. 2014

100

2.3x

8x

Feb. 2014

17

NA

NA

Aug. 2014

NA

NA

NA

Aug. 2014

NA

NA

NA

Source: Capital IQ
(a) Selection criteria based on size and publicly available information.
24

Sector

Mobile
Ad Tech
eCommerce
Marketing Automation

25

Key Trends in Ad Tech

Recent IPOs have brought new life into the Ad Tech community
Creating urgency to get scale
Establishing clarity around value for high growth advertising
stories
Noise level on Privacy/Cookie debate up; although still very
exploratory in terms of going forward models

Programmatic ad buying is getting closer to being the new norm

Category leaders getting funding, but otherwise hard market for new
capital
Convergence of marketing and advertising technologies not leading to
considerable strategic activity yet

26

Continuing Influence of RTB

Technology and transparency leading to greater buying efficiencies for advertisers

U.S. Digital Display Ad Spend

Improved
ROI
Growth of
digital
share of
total ad
spend

Digital %
Overall Ad
Spend:
23%

25%

27%

28%

29%

Sources: e-Marketer.

27

31%

Select Ad Tech M&A in 2014YTD

(a)

($ in Millions)

Implied Enterprise Value to LTM

Date

Acquirer

Target

Size

Revenue

EBITDA

Jul. 2014

$382

3.5x

21.0x

Feb. 2014

408

6.5x

NA

Mar. 2014

360

10.3x

NA

May 2014

101

8.1x

NA

Apr. 2014

205

2.1x

NA

Aug. 2014

230

2.7x

NA

Jun. 2014

350

6.6x

44.0x

May 2014

310

12.4x

NA

Jul. 2014

240

4.8x

NA

Sep. 2014

107

17.6x

NA

Oct. 2013

119

9.9x

NA

Jul. 2014

144

1.4x

NA

Jun. 2014

235

1.3x

NA

Jun. 2014

150

5.8x

NA

Mar. 2014

200

NA

NA

Source: Capital IQ
(a) Selection criteria based on size and publicly available information.

28

Sector

Mobile
Ad Tech
eCommerce
Marketing Automation

29

Big Industry Growth Opportunity in eCommerce

U.S. ($ Trillions)
eCommerce

$4.3
Traditional
Y/Y Growth (%)
eCommerce
Y/Y Growth (%)

$4.5

$4.7

$4.9

Traditional Retail
$5.1

$5.3

$5.5

5.2

4.2

4.4

4.3

4.0

4.0

4.0

16.0

15.9

16.1

15.6

14.8

13.7

12.6

2012 2013 2014E 2015E 2016E 2017E 2018E

7%

8%

Source: eMarketer, April 2014; Goldman Sachs, eCommerce Expected to Accelerate

30
Globally in 2014; Forrester Research , 2014

11%

Mobile Will Play an Increasingly Important Role

U.S. ($ Billions)

Global ($ Billions)

Mobile Commerce

Desktop Commerce

$1,346

$410

$1,179

$364

$1,024

$320

$179

2012

14%

$208

$241

$882

$279
$545

2012

2013 2014E 2015E 2016E 2017E 2018E

24%

32% 11%

$638

$752

2013 2014E 2015E 2016E 2017E 2018E

27%

Source: Goldman Sachs, eCommerce Expected to Accelerate Globally in 2014

31

47%

eCommerce M&A Dynamics

Early Days for eCommerce M&A

Complicated Because
Logical Buyers = Traditional Retail, Trade at Low Multiples

Many eCommerce Companies Choose Growth Over Profits

Many Specialty Verticals Hit the $100mm Wall
Lots of VC/PE $$ InvestedBig EXIT Expectations

Role of Social eCommerce M&A Not There Yet

32

Select eCommerce M&A in 2014YTD

(a)

($ in Millions)
Implied Enterprise Value to LTM

Size(1)

Revenue

EBITDA

Jul. 2014

$3,305

19.0x

NA

Feb. 2014

2,600

13.1x

43.3x

Jul. 2014

970

NA

NA

Mar. 2014

422

2.3x

24.7x

Jul. 2014

300

1.4x

NA

May 2014

281

0.7x

NA

Sep 2014

200

7.6x

NA

Apr. 2014

160

8.7x

NA

Aug. 2014

121

0.7x

NA

Oct. 2013

100

9.9x

NA

Sep. 2014

50

2.5x

NA

Jul. 2014

42

0.4x

NA

Date

Acquirer

Target

Source: Capital IQ
(a) Selection criteria based on size and publicly available information.

33

Sector

Mobile
Ad Tech
eCommerce
Marketing Automation

34

Evolution of Marketing Software

1995-2001

Dotcom Bubble
Email and the Internet
are in their introduction /
growth stage, as
mainstream adoption
begins to occur.
Companies like
Google, MSN, and
Yahoo were launched in
order to support the
demand for email and
internet content

Launched

2002-2007

Dotcom Bubble
Burst and the
Emergence of
Social
After the Dot.com bubble
burst, there was a drought
of funding for new internet
businesses.
Shortly after, a new
generation of companies
were founded as peoples
use of the internet evolved
and became more
integrated with their daily
lives
Launched

2009-2010

The Rise of the

Devices
As social media consolidation
occurs ad acquirers try to add
critical capabilities to their own
product suite

2011-2014YTD

Critical Mass in the Need

for Data Automation
IPOs
Key Acquisitions

Key Acquisitions

&

Legislation
Do Not Call List
Can-Spam Act
Source: Capital IQ
35

Marketing is Becoming a Key Strategic Imperative

Alignment
CRM
(Database)

Marketing
Automation

RPM
(revenue
performance
management)

Key Objectives

Client Sales

Sales Marketing

CMO/CTO CFO/CEO

36

Identify, organize, and assign leads

and prospects

Sophisticated conversion from lead to

prospect

Integrated measurement across

channels/touch points

Incorporate social channels

(Campaign management vs.
marketing tool management)

Cloud-based platform allows for rapid

prototyping and ongoing development

Marketing viewed as revenue

generator vs. cost center

Attribute marketing activities against

financial performance

Plot most direct course through sales

funnel to maximize marketing ROI

Marketing Automation Ecosystem

Database Marketing (2)

Site Optimization (4)

Attribution (2)

Web Analytics (3)

Mobile Marketing (8)

Marketing Automation

Demand Side Platform

(4)
Social Marketing (19)

Display/Search
Retargeters (4)

Email (8)
Predictive Analytics

Personalization

CRM (9)

37

Select Marketing Automation M&A in 2014YTD

(a)

($ in Millions)
Implied Enterprise Value to LTM

Date

Acquirer

Target

Size

Revenue

EBITDA

Apr. 2014

$492

2.6x

NA

Jul. 2014

390

NA

NA

Apr. 2014

275

3.4x

NA

Jul. 2014

175

4.4x

NA

Source: Capital IQ
(a) Selection criteria based on size and publicly available information.
38

III. Summary Thoughts

Summary Thoughts
Digital Media Private Financings: Bigger Checks
Higher Valuations
An Increasing Number of $1billion+ Babies
Digital Media IPOs: Lots of Exits in 2013 and 2014
Mixed Performance
Digital Media M&A: Good Deal Year with Many Solid Growth
Themes
Variety to Size and Scale
Broadening Buyer Universe
Favorite Gridley 2015 Investment Themes:
Mobile
eCommerce Services
Ad Agency Disruption
40