TRMR fell 15% on its debut and another 6% in today’s trading. This after the deal was priced at $10, below its expected $11 to $13 range.
To me, this looks like a very bad sign for the online video space.
Founded in 2005, Tremor has become a top player in the online video space. At the core is a platform called VideoHub, which allows customers to display their ads across desktop computers, smartphones, tablets and even connected TVs. The network includes about 500 websites and mobile apps, with more than 200 involving exclusive partnerships.
The technology has some important features, especially for top brands. For example, VideoHub has filters to make sure ads are not served alongside obscene or offensive videos. Rich Big Data analytics help to measure the success of a campaign, and in fact, the company’s business model is based on engagement — brand lift and time spend are important, not just regular clickthroughs. It’s known as cost per engagement, or CPE, and has resulted in a nice alignment with customers.
According to eMarketer, the online video market is expected to increase by nearly 29% per year until 2016, at which point it should reach about $8 billion. No doubt, a big driver will be mobile, which currently accounts for nearly a quarter of overall traffic.
Great news for Tremor, but the company still has a number of nagging issues to address.
The first is a big one: Its growth isn’t that hot. Last year, revenues only grew by about 16% to $105.2 million. While there’s no shortage of competitors helping to keep Tremor down — Hulu, BrithRoll, Adap.tv, Videology and YuMe are all in that number — Google (GOOG) might be the most lethal threat.
Google operates that dominant video platform, YouTube, and also has extensive ad campaign tools, which came through internal development as well as acquisitions of companies like AdMob. It also has the advantage of its massive Android mobile system, which has more than 900 million activations under its wing.
YouTube’s increasing sphere might even be dampening enthusiasm for the sale of Hulu — it’s looking like a bid for the company will be for around $1 billion, which would only be a mere 1.4 time revenues. And that could put a valuation cap on Tremor. Using the Hulu multiple, Tremor would have a market cap of about $150 million, which compares to its current value of $400 million!
Bottom Line: Tremor has promising technology, but it looks likely that there could be even more downside for TRMR stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.