[We produced this snapshot for IPO Candy last week and since it’s a post-IPO research snapshot decided to also post it here for our subscribers. That also explains the “candy style” structure of this post.]
MediaMind had a so-so IPO back in August. The shares traded up about 50% in September before settling back down recently. We had time to catch up with this one and complete our analysis and IV estimates. This one is worth a look because they have built a valuable asset in a desirable market. Management style keeps us from seeing this as a classic like the Mars bar or M&M’s but every now and again a Charleston Chew can hit the spot.
The Wrapper: MediaMind provides a technology platform for advertising agencies to manage campaigns that leverage digital and online channels. The solution improves reach by including multiple channels, improves targeting and impact and helps to measure results and optimize placements. Company is expected to report just over $80M in revenues and generate nearly $20M in EBITDA for 2010. Current market capitalization is $250M. Positioned as a neutral (non-publisher owned) platform. Company has over 7,000 advertisers, over 3,000 agencies and over 5,000 publishers in their network. 95% gross margins, 25% EBITDA margins, 348 employees, US HQ is NYC, founded in Israel with offices in many major international cities.
Recipe Story: MediaMind was founded ten years ago at the end of the great dot-com bubble. Without doing a history paper, it looks like the company was in development mode until about 4 years ago when they started to raise substantial capital, expand the board and the management team. The company changed their name from Eyeblaster on June 15th, 2010 after their IPO was filed and underway.
- The online advertising market is large and growing. Advertising spend still lags consumer time spent online. There are several years of “built in” secular growth.
- MediaMind has exploited the fragmentation and complexity of the online space to provide a solution for agencies that improves their effectiveness in terms of reach, engagement, measurements and optimization. As a “neutral” platform provider they offer something different than publisher-owned solutions from companies like Google and Microsoft.
- Margins are very high. With 95% gross margins and 20% operating margins, MediaMind is generating high returns on capital.
- A new version of the core product (2.0) was recently released and has received strong reviews and may help cement the company’s position as a leading third party advertising platform.
- Overall, MediaMind offers a more integrated, more international, and an enhanced ability to use richer advertising mediums than other solutions.
- It’s not clear that the company is building a culture and a management style for the long haul. Their results and execution have been good, but the overall vibe coming out of the company is that turnover is high, communication is poor and advancement opportunities are limited. This is no Zappos.
- There appear to be quite a few companies engaged in helping to solve many of the same problems in the online advertising space. It’s not clear how “sticky” the MediaMind platform is with agencies yet.
- Even though we are not active in the advertising space, we were mildly surprised by the number of people in the business who responded with “never heard of them” when asked. Normally we’d say this is just because it’s an early stage company but this is an advertising effectiveness firm, yes?
- Rightly or wrongly, many investors factor in some sort of discount for companies coming over from Israel. We have already factored that into our intrinsic valuation analysis.
Candy Verdict: Charleston Chew – Adding to IPO Candy Folio
Setting aside the somewhat anti-nurture style of the management team, the company has built a very attractive business that the market appears to be undervaluing based on our IV estimate of $25.
The positioning and margins also make the company a desirable acquisition in what is a very strategic space for companies in media, advertising and technology. This factor helps to mitigate downside risk and probably provides some hard-to-quantify upside to our IV estimate.
[Disclosure: The IPO Candy Folio holds a long position in MediaMind. More information about the IPO Candy Folio can be found at http://ipocandy.com/invest]