Oppenheimer & Co. managing director and senior analyst Jason Helfstein will speak at AdExchanger’s upcoming PROGRAMMATIC I/O New York conference on Oct. 25-26 in a presentation titled “Programmatic Wall Street.”
Wall Street is changing how it looks at ad tech.
The Trade Desk went public, and its consistent overperformance has made it the darling of investors who had sworn off ad tech – an area its CEO, Jeff Green, said potential investors found less attractive than mining. Snapchat – though off to a rocky start – still earns strong marks from Jason Helfstein an internet analyst at Oppenheimer & Co. Criteo continues to please investors.
And two companies with underperforming stocks – Tremor Video and Rocket Fuel – have taken part of or all of their business off the market through acquisition.
Helfstein gave AdExchanger an investor’s perspective on what’s going on in the ad tech landscape – and keeping his comments to public companies, to avoid potential conflicts of interests at other divisions of Oppenheimer & Co.
AdExchanger: Has Wall Street’s opinion of ad tech changed in the past year?
JASON HELFSTEIN: The market has gravitated toward who is making money. Over the past 18 months, we’ve seen a transition from valuations based on sales multiples to cash flow multiples. The Trade Desk and Criteo are both valued on cash flow, whereas in the past, Rubicon and TubeMogul were based on a multiple of sales, with the anticipation of profits over time.
Why is the Trade Desk doing so well right now?
The Trade Desk stock is priced at a significant premium to Criteo based on its faster growth and ability to beat analyst expectations.
If you look at the past four quarters, The Trade Desk beat revenue estimates by an average of 11% and EBITDA by an average of 50%-plus. They have been able to scale their business and appear to be in the winning position within the ad agency community. The big question is if they will be able to sustain their take rates.
What does the market look like for ad tech companies interested in going public?
Trading volume in the past six months has gone up dramatically for The Trade Desk, Criteo, Rubicon and Rocket Fuel.
This is partially driven by increases in M&A activity, such as Tremor and Rocket Fuel, but [also due to] good execution by others. We are waiting to see what the largest digital media companies decide to do.
Verizon is making a big bet on Yahoo, now part of Oath. We think they need to further scale their ad tech, so it’s a question of build versus buy. And there are other companies that have been speculated on to go public that may have shelved their offerings when the market shifted to a focus on cash flow and margin.
Are there any large ad tech companies out there that are too big to be acquired?
There are other verticals where companies are so big there isn’t an acquirer. But I think all of ad tech could get bought out at this point, without going public, given the market capitalization of the buyers and all the private companies that they could buy.
You’ve been bullish on Snap. Why do you think they’ll win, and what’s the impact of Instagram copying so many of Snapchat’s features?
Snap is not a winner-take-all. They are doing a very good job with the youth niche, 25 and under. These people are going to movies, shopping at malls and eating fast food. We hear from agencies that it’s an attractive platform to reach young people, but still relatively small from a budget perspective.
Facebook took several quarters to get their ad tech business going, Snap only rolled out their programmatic solution at the end of the first quarter and only recently added features that were appealing to direct-response advertisers.
We also think Facebook’s increased focus on shorter-length video ad units will benefit Snap, as those ads can also be used in the Snapchat platform. Facebook is in a better position to influence advertisers’ behavior.
What do you make of Amazon’s ad tech ambitions, including its expansion into the sell side with its header bidding wrapper Transparent Ad Marketplace?
No one really knows. But all the major ad tech players are taking Amazon seriously. Amazon is cost efficient for publishers and delivers strong results.
Amazon has phenomenal data about what consumers have purchased and want to purchase. Amazon will be a player long-term, but it’s unlikely that they have the same role as a Facebook or Google.
If you are a company that makes your own product, it’s a love-hate relationship. You do not want to be overly dependent on Amazon as a sales and marketing channel. We don’t yet know how additive marketing on Amazon will be.
What’s going to happen with ad tech in the TV landscape?
For OTT and on-demand viewing, viewers expect meaningfully lower commercial load. However, to maintain a business model, media companies will need to charge much higher prices for those ads. So whose technology and data do they use to do personalized ads using login data?
Facebook has clearly stated that they want to be a player in video content. Do they plan to license the content themselves or seek to partner and leverage their ad tech? Too early to know.
There is this idea that Facebook and Google are taking most of the incremental ad dollars. What is the relationship between their growth and the fate of other ad-supported public companies?
According to the IAB in Q1, US advertising grew by $3.7 billion year over year. If you add up US Facebook and US Google, that’s $3.6 billion. That means that they were 98% of the growth.
Why are they so successful? Because users are mostly logged in on their mobile platforms. They are able to use their data to target incredibly efficiently. As an advertiser, if I am going to shift my ad budget to programmatic, I am probably going to focus on platforms provider with the best mobile solutions.
The initial bath of ad tech companies that went public were either desktop- or video-focused platforms, with mobile as an emerging product. This is partially because mobile data is more difficult to capture and use. That is another reason you have to take Amazon seriously, because they have login data. And that’s why Verizon is in the best position right now to build a third or fourth stack to challenge Facebook and Google, but it’s too early to make a conclusion.
What do you make of Rubicon’s turnaround plan?
You have a new CEO [Michael Barrett] who has a track record helping mismanaged ad tech companies. They acknowledge where the industry is heading: higher volume and lower take rates based on header-bidding and wrapper technology. The jury is still out.
What company is the most misunderstood right now?
When you look at Criteo’s valuation relative to growth, you could argue it’s low. There has been constant concern about competition for Criteo, which has been impacting the stock’s valuation.
