Almost every public ad tech company's stock got clobbered on Monday night.
Why? It seems as if investors are reacting to a poor showing in second-quarter earnings from Millennial Media and YuMe.
YuMe cofounder and CEO Jayant Kadambi described his company's quarter as "disappointing." Revenue was flat, missing expectations, while earnings per share of $0.17 missed by $0.08.
The earnings call was brutal. Kadambi said: "Given the loss of a couple of customers I think it will take some time to get the customers back, and once you lose somebody, it takes some time. But we've shown in the past that we are able to do it. Fundamentally on the sale side, it's just enthusiasm in programmatic, and a little bit taking the eye off the ball."
Stockholders reacted in after-hours trading. Ouch.
Then to Millennial Media.
Year-on-year, revenue declined 2% to $65.8 million. It's almost unheard of for ad tech companies to report a decline in revenue — investors usually get spooked enough if growth declines. The company is guiding for full-year revenue of $267 million to $280 million, way below prior guidance of $311 million to $342 million.
$MM stock got hammered in after-hours trading.
TubeMogul also reported on Monday evening. It actually had a fairly positive quarter. Revenue was up 58% year-on-year to $45.4 million. But the company swung to a net loss of $1.3 million versus a profit of $2.1 million in the year-ago quarter as it invested substantially in R&D, sales, and marketing.
TUBE stock had already dropped a huge 14.6% ahead of its earnings release on Monday after BMO Capital analyst Daniel Salmon downgraded the stock to "market perform" from "outperform." Salmon said he was concerned about the private ad tech company AppNexus entering the video-buying market, which will put considerable pressure on TubeMogul. Another recent concern regarding TubeMogul is Google's recent decision to shut off third parties from selling YouTube ads via DoubleClick Ad Exchange.
Fortunately for TubeMogul, its positive quarter seems to have outweighed these longer-term concerns, and its shares rebounded 26.4% in after-hours trading.
But elsewhere, ad tech stocks are tumbling.
Rocket Fuel shares are down more than 50% year-to-date. Its stock continued to tumble on Monday.
Criteo — usually heralded as one of the few bright lights of the public ad tech companies — rallied slightly in after-hours trading on Monday, but it still dropped on Monday overall.
This was Tremor Video on Monday.
Only The Rubicon Project bucked the trend.
Collectively, ad tech stocks have been going south for some time, as The Wall Street Journal reported back in June.
There's trepidation around the sector for numerous reasons:
Google and Facebook are eating their lunch. Google and Facebook are building and buying their own ad tech. It's extremely difficult to compete with companies of that scale. Not least when they build up "walled gardens" and attempt to own every area of the ad tech stack, from buy-side to sell-side, essentially offering advertisers a one-stop-shop for all their needs.
The ad tech sector is complicated. And it trades off being complicated, with the acronyms and layers of tech and middlemen that go between an advertiser spending a dollar on an ad and that ad actually being served to a consumer. But that level of complexity also makes it difficult for investors to figure out which companies to bet on.
And it's confusing: With so many ad tech companies out there, it can be difficult for investors to differentiate between them. Are all the companies on the LUMAscape really that different?
Marketers are worried about being cheated. Areas such as advertising fraud, viewability, and malvertising are becoming bigger issues. Ad tech companies are becoming and more and more accountable for the inventory they sell and are having to invest more in transparency measures.
Ad blocking is on the rise. More and more consumers are choosing to avoid ads altogether on desktop. And Apple's iOS9 update in the fall, which includes the ability for the first time to block ads on iPhone and iPad, could prove a catalyst for mobile ad blocking.
But it's not all doom and gloom for ad tech. Online advertising spend is growing at a huge clip, and while it looks as if Google and Facebook will remain dominant players for the forseeable future, there's still plenty of room (in the form of tens of billions of dollars of ad spend) to play with. It never makes sense for marketers to put all their eggs in one basket when it comes to online advertising, and most opt for a formula of: Google + Facebook + one or two others.
The ad tech industry is still at a relatively early stage compared with other industries, and many of these public companies went public only recently, which may also explain the volatility of the stock prices.
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