Piper Jaffray Calls For Scalable, Client-Facing Digital Advertisers to Outperform Peers: a Wall Street Transcript Interview with Mark Zgutowicz, Vice President and Senior Research Analyst

Wall Street Transcript

67 WALL STREET, New York - October 14, 2012 - The Wall Street Transcript has just published its Internet Services Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Increased Mobile Content Traffic - Enterprise Adoption of Cloud Computing - Social Networking Economics

Companies include: Rentrak Corporation (RENT), Meredith Corp. (MDP), Acxiom Corporation (ACXM), Valassis Communications Inc. (VCI), Procter & Gamble Co. (PG), Monster Worldwide, Inc. (MWW), Arbitron Inc. (ARB) and many others.

In the following excerpt from the Internet Services Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Last time we spoke, one of the major themes you talked about was the shift from traditional advertising platforms to digital ones. What developments have you observed on that front over the past several months? And which companies are best positioned to benefit from that shift as it continues to play out?

Mr. Zgutowicz: Well, we've seen that trend continue, and when we last spoke, I think I quoted a number of roughly $20 billion that is shifting from traditional ad mediums to digital over the next, call it, four to five years.

One of the best companies positioned to benefit from this shift is LinkedIn (LNKD), which is one of our top picks in our coverage universe. Other companies stand to benefit, including Rentrak (RENT), which has some niche services and technologies measuring viewership on TV, video and at the box office. LinkedIn and Rentrak are two of our top picks amidst the evolution of digital advertising.

TWST: What new technologies or service offerings are currently in development that aren't having an impact right now, but you envision may be significant over the next four to six quarters?

Mr. Zgutowicz: I think the two most prominent are on both the smartphone and tablet advertising front. LinkedIn stands to benefit from increasing penetration and usage of smartphones and tablets - specifically, the shift of eyeballs to viewing devices away from historically primary mediums such as TV. LinkedIn has yet to release an ad monetization platform in both of those areas, so essentially all of the advertising revenue garnered at LinkedIn today is on LinkedIn.com. We expect a mobile ad platform to be released prior to year end, enabling companies - and particularly, B2B advertisers - to better engage LinkedIn's 170 million or so global user base who are increasingly using LinkedIn's smartphone and tablet apps to access content.

TWST: How would you describe the competitive landscape for this group? What gives a company a competitive advantage, and which of your companies would you highlight as the strongest competitors?

Mr. Zgutowicz: Well, we have kind of an eclectic space, and I wouldn't say they all overlap perfectly, but I'd say just broadly speaking, the competitive advantages are twofold. One is that companies that have more direct relationships with the advertiser as opposed to the agency, so client-facing relationships, if you will. This type of business model lends to a stickier client base and an easier upsell of new services and technologies without the compromise of margin.

Companies within our coverage universe that hope to leverage this positioning include Meredith Corp. (MDP), Acxiom (ACXM) and Valassis (VCI) to some extent. These companies have more or equal direct relationships with the end advertiser, as with an agency, versus other ad tech business models more closely aligned with agencies.

The second important competitive advantage is scale. That is having the ability to reach and target a demographic or multiple demographics effectively. So while company "XYZ" may have some interesting case studies for showing high ROI at a small target audience, it may mean little to a Procter & Gamble (PG) that needs to achieve ROI on a $30 million digital ad campaign. LinkedIn certainly falls within this scalable camp with 170 million-plus members and an increasing number on tablets, which is a unique scalable ad solution in our view.

TWST: What do you believe are some common misconceptions about the technology and marketing services sector that may sometimes lead new investors astray?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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