A Guide to the Digital Media Market - CVG Second Thursday, 2/12/13
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The digital media IPO market in 2012 has been challenging compared to 2011. Several high profile consumer internet companies that went public in 2012, like Facebook, have underperformed and brought into question valuations of consumer internet companies. Many 2011 digital IPO companies have also struggled with changing business models as public companies. Enterprise marketing IPOs have performed relatively better based on company fundamentals. Overall M&A has been a risky strategic option for newly public digital companies.
A Guide to the Digital Media Market - CVG Second Thursday, 2/12/13
- 1. A Guide to the Digital Media Market A Second Thursday Event presented by Crossroads Venture Group February 12, 2013 University of Connecticut Stamford
- 2. A Guide to the Digital Media Market Moderator Eric J. Dale Partner Robinson & Cole Guest Speaker Peg Jackson Managing Director Gridley & Company
- 3. DIGITAL CHALK TALK: Creating Value in Today’s Increasingly Digital World Crossroads Ventures Group February 12, 2013
- 4. Agenda I. Where Value is Being Created in Digital II. Summary of IPO Performance III. What’s Happening in Digital New York IV. Quick Gridley Commercial 4
- 5. I. Where Value is Being Created in Digital
- 6. Tectonic Shifts Underlying Digital Continue (Website) 2000 5% 2010 (eCRM, Website) 2015 (eCRM, Website, Syndicated Channels, Owned 7% Content) media Owned 10% media Owned media 90% 80% 60% Paid Media Paid Media Paid Media (Advertising) 13% 30% 5% Earned Earned (PR, Blogging, Earned media media Video Sharing, Wiki, (PR, Twitter, Facebook, Bookmarking, Social media (PR, Word of Mouth) Blogs, video sharing) Networking, Crowdsourcing, Co-Creation, Commenting etc.) Growth of Social Growth of Mobile 1,005 10% Gobal Social Network Users % of Global Internet Traffic (Millions) 373 1% Source: Strategy Analytics. 2007 2012 Source: KPCB 2009 May 2012 6
- 7. Unprecedented Time for Enormous Value Creation • Traditional industry leaders are highly vulnerable like never before Open Source Open Architecture Cloud Computing New Business Models • Innovation at record speeds – Approximately $130 Billion of value created in 3 years Private Public 7
- 8. Computing Platform Shifting Underlies Much of the Value Reallocation in Digital • Windows loses 40% of market in less than four years • Open Source grows to 1/3 of market 8
- 9. Volatility is Inevitable as Emerging Digital Leaders Develop Their Business Models in the Public Eye Company Year Founded Value T-1 Year Value Today Δ Value 2002 $6.2 Billion $12.6 Billion $6.4 Billion 2004 $73.0 Billion $58.2 Billion ($14.8 Billion) 2004 $561 Million $1.2 Billion $639 Million 2007 $6.0 Billion < $1.0 Billion ($5 Billion) 2007 $11.7 Billion $1.9 Billion ($9.8 Billion) 2008 $10.7 Billion $3.4 Billion ($7.33 Billion) Total $108.2 Billion $78.3 Billion ($29.9 Billion) Sources: Second Market and CapIQ as of January 4, 2013 9
- 10. Key Players Positioned to Attack Emerging Growth Markets Mobile $500 $450 Commerce Advertising / Market Cap ($ in billions) $400 Marketing $350 $300 $250 Payments Content $200 $150 $100 Social $50 $0 Newscorp Microsoft Yahoo Facebook Apple Discover eBay Omnicom WPP AOL NY Times Visa Time Warner Alliance Data Amazon CBS Publicis Mastercard Google Oracle IBM IPG Disney Dentsu Viacom Salesforce eCommerce led Services led Payments led Content led Platform driven Technology led 10
- 11. Social is Chewing Through Multiple Markets Net Subscriber Adds for Cable TV Commerce Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 • Developing models that tie social 0.0 connectivity into the path to purchase (0.1) Δ Subscribers (millions) (0.2) (0.3) Payments (0.4) • Infrastructure underlying social commerce (0.5) still primitive (0.6) (0.7) Source: One Touch Intelligence. Monthly Active Facebook Users Worldwide AdTech/Mkt 1000 • Facebook alone represents about 1/3 of total impression volume 800 • Facebook recently announced plan to extend Users (millions) 600 data outside of its properties for ad targeting 400 Content 200 • Scalable business historically limited to 0 gaming December 2004 October 2012 Source: Facebook S-1 11
- 12. 2012 Was the Year of Social M&A Notable M&A Notable Private Financings Acquirer Target Company $1.2BN $100MM $85MM $1BN $53MM $745MM $50MM NA $40MM NA $32MM NA $25MM 12 © 2012 Gridley & Company LLC
- 13. Can We Take Mobile Seriously Yet? Commerce Desktops+Notebooks • Certain retailers seeing 30%+ of transactions originating from mobile form factors Q2:13E: Projected Inflection Point Smartphones + Tablet Installed Base > AdTech/Mkt Total PCs Installed Base • Very young category • Integration of marketing and payments Content • Scalable business historically limited to gaming Payments • Industry titans chasing opportunity to 2009 2010 2011 2012E 2013E 2014E reimagine mobile payments, especially in- 2015E store 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: Morgan Stanley Research, 2012. 13
- 14. Mobile M&A Growing Up Quickly, Albeit on Small Volume Notable M&A Notable Private Financings Acquirer Target Company $200MM $1BN $70MM $183MM $50MM $50MM $35MM NA $20MM NA $16MM Source: CapIQ 14 © 2012 Gridley & Company LLC
- 15. POS – A Major Battleground in Mobile Market Research / Account Marketing Data Analytics Digital Commerce Consumer Payments eReceipts 15
- 16. Keys to Value Creation in the Digital Economy Durable and extensible Ability to evolve Enduring brand platforms quickly Technical barrier or consumer lock-in 16
- 17. Digital Bellwethers – Apple vs. Google Stock Price Performance Market Cap ($ billions) 250% % Price Δ Apple Google YTD 39.7% 3.5% 200% 1-Year 50.9% 12.3% $528 3-Year 176.7% 14.6% 5-Year #NAME? #NAME? 150% 100% $220 50% 0% Apple Google (50%) (100%) Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Apple Google S&P 500 17
- 18. Digital Bellwethers – Apple vs. Google • Aggressive acquirer to maintain mindshare in key • Took advantage of unfocused sectors consumer electronics players in • Intelligently consolidated capabilities across mobile to build a platform adtech stack company • Remained true to its closed environment philosophy • Acquired its way into largest growth markets – mobile and payment • Remained relatively agnostic to application − Used M&A as a tool to fill • Took a long term bet on online video, just starting to realize value today holes in building platform services • Considerable resources to experiment in new areas − $45bn in cash • Considerable firepower to adapt • Has aggressively invested as core search business − $120bn in cash matures 18
- 19. Commerce Leaders – Amazon vs. eBay Stock Price Performance Market Cap ($ billions) % Price Δ Amazon eBay YTD 32.7% 58.0% 110% 1-Year 16.5% 60.8% $104 3-Year 72.8% 103.1% 5-Year #NAME? #NAME? 90% $62 70% 50% 30% Amazon eBay 10% (10%) (30%) Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Amazon eBay S&P 500 19
- 20. Commerce Leaders – Amazon vs. eBay • Saw mobile and local services • Very selective but strategic early and made smart about owning key commerce acquisitions across the path to assets purchase • Recognized opportunity to “facilitate” commerce and acquired GSI Commerce • Most notable acquisitions • Grew Paypal into a payments platform that is portable to intended to maintain high mobile and offline barrier through brand and price • Aggressively moving into • Made considerable investments against its “partner” strategy as hardware and offline as mobile core eBay commerce business emerges as an important stagnated facilitator of commerce 20
- 21. Digital Content Leaders - Yahoo vs. AOL Stock Price Performance Market Cap ($ billions) % Price Δ Yahoo AOL YTD 14% 134.9% 1-Year 19% 140.8% 70% 3-Year 20% 41.5% 5-Year #NAME? NA $22 50% 30% 10% (10%) $3 (30%) Yahoo AOL (50%) (70%) Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Yahoo AOL S&P 500 21
- 22. Digital Content Leaders - Yahoo vs. AOL • Aggressive acquirers in technology early, but fragmentation of content and adtech difficult to counteract • Rebirth of both companies with new management teams • Jury still out on sustainability of models − Yahoo – “Productizing” around mobile platform − AOL – Assembling a stable to top tier content brand • Large stock moves to date driven by one-time events Didn’t participate in shift to mobile Notable M&A Deals Outside of Publishing 2005 2006 2007 2008 2009 2010 2011 2012 22
- 23. II. Summary of IPO Performance
- 24. Current State of Digital IPO Market • Challenging market for digital/internet IPOs this year − Facebook performance brought into question consumer internet valuations − Platform dependencies exasperated downward pressure • M&A very risky strategic tool for newly public companies today − New digital companies having to compete for scarce assets against much larger competitors − Lack of financial fundamentals in most targets today brings new levels of risk to shareholders • Numerous consumer internet companies required to change business model while being public − Zynga, Groupon, DemandMedia • Enterprise marketing remains relatively healthy − Performance dictated by company fundamentals 24
- 25. Digital IPOs in 2012 vs. 2011 2012YTD U.S. Digital IPOs 2011 U.S. Digital IPOs ($ in millions) Offer Current Performance ($ in millions) Offer Current Performance Date Company Size Market Value Since IPO Date Company Size Market Value Since IPO Oct 11 Workday, Inc. $732.6 #NAME? #NAME? Dec 15 Zynga, Inc. $1,000.0 #NAME? #NAME? Oct 10 Shutterstock, Inc. 76.5 #NAME? #NAME? Dec 12 Jive Software, Inc. 161.3 #NAME? #NAME? Oct 02 LifeLock, Inc. 141.3 #NAME? #NAME? Nov 16 Angie's List, Inc. 114.3 #NAME? #NAME? Sep 19 Trulia, Inc. 102.0 #NAME? #NAME? Nov 03 Groupon, Inc. 700.0 #NAME? #NAME? Aug 01 Eloqua, Inc. 92.0 #NAME? #NAME? Aug 10 Carbonite, Inc. 71.9 #NAME? #NAME? Jul 25 E2open, Inc. 70.3 #NAME? #NAME? Jul 19 Zillow, Inc. 79.6 #NAME? #NAME? Jul 19 Kayak Software 91.0 #NAME? #NAME? Jun 28 HomeAway, Inc. 248.4 #NAME? #NAME? May 17 Facebook, Inc. 16,006.9 #NAME? #NAME? Jun 16 Bankrate, Inc. 336.8 #NAME? #NAME? Mar 28 CafePress Inc. 85.5 #NAME? #NAME? Jun 14 Pandora Media, Inc. 234.9 #NAME? #NAME? Mar 28 Millennial Media Inc. 132.6 #NAME? #NAME? May 25 The Active Network, Inc. 165.0 #NAME? #NAME? Mar 22 Vipshop 71.5 #NAME? #NAME? May 18 LinkedIn Corporation 352.8 #NAME? #NAME? Mar 21 ExactTarget, Inc. 161.5 #NAME? #NAME? May 10 FriendFinder Networks Inc. 50.0 #NAME? #NAME? Mar 21 Vantiv, Inc. 500.0 #NAME? #NAME? Apr 20 Responsys, Inc. 79.4 #NAME? #NAME? Mar 14 Demandware, Inc. 88.0 #NAME? #NAME? Apr 13 Zipcar, Inc. 200.5 #NAME? #NAME? Mar 01 Yelp, Inc. 107.3 #NAME? #NAME? Jan 25 Demand Media, Inc. 174.0 #NAME? #NAME? Feb 23 Bazaarvoice, Inc. 113.8 #NAME? #NAME? Mean #NAME? Feb 17 Brightcove, Inc. 55.0 #NAME? #NAME? Median #NAME? Feb 09 Synacor, Inc. 34.1 #NAME? #NAME? Mean #NAME? Median #NAME? 25
- 26. Social Consumer IPOs Stock Price Performance Commentary 60% 40% • Doubled down with M&A and investment 20% in an unsustainable model 0% • Negative publicity was too hard to overcome (20%) (40%) • Dismal M&A strategy; paid $180mm for OMGPOP, wrote it off shortly thereafter (60%) • Realization of platform risk and consumer (80%) behavior shift in a short period of time (100%) IPO 30 60 90 120 150 180 210 240 Offer days days days days days days days days Price • Jury is out on quality of long term business Groupon Zynga Facebook revenue growth model • Company aggressively experimenting 26
- 27. Lead Gen / Content IPOs Stock Price Performance Commentary 80% 60% • Had successfully built a content business around high value verticals such as finance 40% and insurance 20% • Disappointing recent quarter as company makes adjustments to its revenue model 0% (20%) (40%) • Content farm = Unsustainable business model (60%) • Pivoting towards AOL strategy (80%) IPO 60 120 180 240 300 360 420 Offer days days days days days days days Price Bankrate Demand Media Kayak • Successful exit three months after IPO 27
- 28. Marketing Automation IPOs Stock Price Performance Commentary 140% 120% • Has struggled to counter pricing issues at 100% large enterprise end of the market 80% 60% 40% • Successfully transitioned business away 20% from traditional email marketing 0% • Growing at north of 40% (20%) (40%) (60%) • Successfully created B2B marketing IPO 60 days 120 180 240 300 360 automation category Offer days days days days days Price Responsys ExactTarget Eloqua 28
- 29. Exciting Value Creators for 2013 SOCIAL Broad Interest Networks • Enterprise & Social integrating within Platforms develop broader suites • Emergence of Niche Enterprise Tools Networks Single channel management tools Niche Networks Context based environments 29
- 30. Exciting Value Creators for 2013 eCOMMERCE Retailing Online • Evolution of new consumer models Creation of online only businesses • “Convergence” a major area of investment among Niche Commerce commerce leaders and VCs Development of new business models Convergence Tight integration offline and online 30
- 31. Exciting Value Creators for 2013 MARKETING SERVICES Email Marketing • Data driven capabilities fuel nearly all M&A and investments Primitive digital capabilities in Mktg Services • Currently in an integration phase – putting all of the pieces New Channels together Development of leading single channel solutions Multi-Channel/Mktg. Automation Data based models to drive higher ROI 31
- 32. III. What’s Happening in Digital NY
- 33. A Word About the New York Scene • New York now consistently #2 tech hub behind SF Bay Area − $5.6 billion invested in Digital NY companies since 2006 − ~200 Digital NY companies have raised $5 million+ of outside capital − ~150 investors focused on Digital NY • Leading digital/internet companies moving into area − Twitter opens office in late 2011 – eBay building an innovation center in the City • NY has distinct competencies that are attracting talent – Wall Street – Madison Avenue – Retail 33
- 34. NY’s Emergence as a Tech Hub • New York City has become a true digital media innovation center Q3 2012 Internet VC Funding by Top Cities Q3 2012 Internet VC Deals by Top Cities Total of Top Cities = $1,853 million Total of Top Cities = 175 Total Including Others = $2,672 million Total Including Others = 372 San Francisco, 69 Others 31% San Francisco 31% Bay Area Palo Alto, 13 Bay Area 98 San Mateo, 9 $1,171M Sunnyvale, 6 Palo Alto Los Altos, 1 3% Others, 197 Los Angeles San Mateo New York, 52 5% 3% Boston Los Altos Sunnyvale 7% 2% Boston, 16 New York 5% 13% Los Angeles, 9 −Source: CB Insights “Venture Capital Activity Report” 34
- 35. The Past Six Years Have Shaped Much of NY’s Digital Media and Technology Landscape • Notable events in NY since 2007: Development of brand names across broad set of verticals / / ($275 million) ($3.1 billion) Closes deal and ($315 announces Mayor Bloomberg million) acquisition of announces HQ move leads / to NY in September Raises series A Opens a starts up city-funded Googleplex in New business incubator in tech VC funding announces ($680 million) round York City programs and deal quantity acquisition of April December June September For $183 July January February million 2007 2007 2007 2008 2009 2011 2011 March 2012 January September November September June June August December 2007 2007 2007 2008 2009 2010 2011 2012 Raises series Mayor Bloomberg offers A round Raises series A $100 million and land to Acquires develop a top announces is founded round announces spin-offs of: Announces engineering school to acquisition of October 2007 For $125 million acquisition of encourage tech comes to New York development, to bring New York City to the forefront of innovation. for $745 million Raises Series B Raises series Raises Series A for $30 billion round A round round announces acquisition of announces acquisition of Raises series A round ($524 million) 35
- 36. NY Ecosystem Has Very Different Roots and Growth Opportunities Than Silicon Valley Internet Services Wall Street Leadership Talent Operational Engineering Efficiencies Talent Data Services Advertising Key Creative Customers Talent Strategic Strategic Acquirers Business Partnerships Fashion Media Development 36
- 37. −NY Area Private Digital Companies by Sector −Digital −Digital Content Marketing −eCommerce −Mobile −Social −FashionStake −SpotO n −Electric Sheep − Note: More companies illustrated on the following sector breakdown pages 37
- 38. −“The Locals” - Digital Focused VC/PE Firms Headquartered in NY Area (72) −Seed −30 −Early Stage −33 −Growth −23 −Buyout −7 Equity −(<$2M) −($1M-$10M) −($10M-$50M) −Upstage −Ventures −Note: Firms may be active in more than one category. Source: Capital IQ, TechCrunch, public filings, and press releases 38
- 39. Explosion of Seed Investment Seed VC Deals 94 79 81 75 55 44 42 41 24 26 13 13 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Source: CB Insights Seed Programs / Super Angel / Seed VC Traditional VC with Formal Seed Programs 39
- 40. −Top 25 Private Digital NY Sale Transactions January 2007 – December 2012 (Disclosed deals / rumored pricing available) −(Enterprise Value in $MM) −$1,000 −$800 −$400 −$200 −$0 −200 −2008 −2009 −2010 −2011 −2012 7 −Source: Capital IQ, TechCrunch, public filings, and press releases 40
- 41. Private Digital NY Sale Transactions >$100 million Since January 2010 (Disclosed deals / rumored pricing available) Transaction Date Acquirer / Target Value ($MM) 6/4/2012 salesforce.com, inc Buddy Media, Inc. $745 6/16/2011 (NYSE:CRM) DG FastChannel MediaMind 524 6/3/2010 The Hearst Technologies Inc. iCrossing, Inc. 425 6/13/2011 Corporation Google AdMeld 400* 2/6/2011 AOL Huffington Post 315 1/19/2011 Affinion Web Loyalty 296 8/26/2012 IAC Search & About.com, Inc. 300 11/1/2011 Media, Inc. Yahoo! Inc. interclick, inc. 264 2/3/2010 (NasdaqGS:YHOO) HotJobs.com, Ltd. Monster 225 1/25/2010 Worldwide, Inc. Dentsu Innovation 200* 3/21/2012 Zynga, Inc. InternactiveInc. OMGPOP, 183 11/12/2012 (NasdaqGS:ZNGA) Ziff Davis Media j2 Global, Inc. 165 9/8/2011 (NasdaqGS:JCOM) Inc. Survey, LLC Google Inc. Zagat 151 6/17/2010 (NasdaqGS:GOOG) Register.com, Inc. Web.com Group, 135 Inc. Source: Capital IQ, TechCrunch, public filings, and press releases. *rumored value 41
- 42. IV. Quick Gridley Commercial
- 43. Focused Digital Expertise Underlies Gridley’s Investment Banking Services Advertising / Content Marketing Social eCommerce Comprehensive Investment Banking Services • Private Company Sales SaaS • Private Company Equity Enterprise Financing • Public Company Buyside Point-of-Sale Mobile Payments 43
- 44. Strategic Thought Leadership is Well Known Industry Frequent Annual Gridley Hosted Quarterly Publications Guides Industry Speaker Events • 2012 Business Insider: IGNITION • DFJ Gotham Annual Investors Meeting • IAB Marketplace: Mobile • Women’s Mobile Network • Highly respected newsletter about industry • 2011 Business Insider: • January Conference trends and corporate IGNITION finance / M&A activity • OMMA Display • Market Research Council Luncheon • Capital RoundTable • SIIA Midmarket Growth Conference • In-depth review of the digital NY ecosystem, • OMMA Mobile including recent startups • Summer Networking • Digital Hollywood NYC: and the firms investing in Media Disruption Event & Golf Outing them • ad:tech NYC 2010 44
- 45. Selected Recent Gridley Transactions Gridley clients include industry leaders and premier emerging growth companies Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $20,500,000 Digital Agency Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by Pending SAS GfK Channel Intelligence, Inc. Minicom Digital Signage Oversee.net TeleTech Holdings The Dolan Company Advisor Advisor Advisor Advisor Advisor Advisor Advisor Advisor Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $20,000,000 $367,000,000 Acquired by Acquired Acquired Acquired by Acquired Acquired Investment by Acquired by WPP Group plc FetchBack Inc. M3 Mobile Marketing MDC Partners Inc. Pepperjam Silverlign Group Inc. TZP Group LLC Roper Industries, Inc. Advisor Advisor Advisor Advisor Advisor Advisor Placement Agent Advisor $157,000,000 Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $113,189,337 $17,450,000 Email Business of Ad Serving Business of PrePay Intelligent Network Solutions Business Unit of Acquired Acquired by Acquired by Sold to Sold to Sold to Secondary Offering Acquired by e-Dialog, Inc. WPP Group plc Quest Software One to One Interactive, Inc. Aegis plc Parthenon Capital LLC Verisign Advisor Advisor Advisor Advisor Advisor Advisor Co-Manager Issued Fairness Opinion Undisclosed Undisclosed $138,000,000 Undisclosed $58,000,000 Undisclosed $55,200,000 Undisclosed Advisory Communications Marketing One to One, Inc. Systems, Inc. (ACS) d/b/a d/b/a Acquired by Acquired by Acquired Acquired by Acquired Acquired by Acquired by Schulman, Ronca, & Valassis Follow-On Offering Carlson Marketing Group ISIS Equity Partners, Inc. Modem Media, Inc. Performics, Inc. ARAG Group Bucuvalas, Inc. . Communications, Inc. Advisor Advisor Advisor Advisor Advisor Advisor Co-Manager Advisor 45
- 46. QUESTIONS? Peg Jackson Linda Gridley Pratik Patel Managing Director President & CEO Director 212-400-9709 212-400-9710 212-400-9712 peg.jackson@gridleyco.com linda.gridley@gridleyco.com pratik.patel@gridleyco.com Gridley & Company LLC 10 East 53rd Street, 24th Floor New York, NY 10022 212.400.9720 tel 212.400.9717 fax Twitter: @gridleyco www.gridleyco.com
- 47. A Guide to the Digital Media Light Marketing at the Speed of Market Upcoming CVG Events and Closing Remarks Liddy Karter Executive Director, Crossroads Venture Group Managing Partner, Enhanced Capital Partners
- 48. THANK YOU CVG SPONSORS B Round A Round Venture Capital Sponsors Professional Service Firms
- 49. Exhibiting Companies Alex Cruikshank, Entfluence Ed Natera, Track180
- 50. Upcoming Events Boardroom Series Second Thursday 7:30 AM – 9:00 AM 4:30 PM – 7:00 PM February 15 March 14 M & A: Tax Considerations New Haven Navigating the FDA: Getting to Market New Haven February 20 Employment and Immigration Issues April 11 Stamford Medical Management March 6 Information Systems Hartford Crowd Funding New Haven May 9 March 13 Financial Services America Invents Act: Stamford Changing the Patent Landscape Stamford
- 51. CVG 2013 Calendar Offering 60 Events Attendance to all Second Thursday events is free for members.