This weekend I was made aware of re/code’s latest article on Ad-Tech Valuation.
This is worth sharing I thought, looking at our complex Luma Landscape in Digital.
According to the article the main points to consider for the valuation of adtech companies are
– Operating Leverage
– Strategic Value
Net revenue is still key, e.g. the media costs which sometimes blow up balance sheets are neglected, so if a company takes 20% margin or 58% is a huge difference. In other words the latter might be valued higher despite a lower gross revenue (media).
For valuation purposes Luma groups companies into:
– Network 1.0
– Network 2.0
This of course explains, and please read the article in full, why most companies aim to be in the SaaS bracket, a programmatically driven platform with own technology, ongoing contracts. On the other spectrum are the I/O based networks.
What becomes clear to me is that our industry is growing up. Our digital industry is changing. We move from the network I/O business to specialised adtech partners (programmatic) to SaaS companies.
To my mind this is not only a market valuation ‘play’ but foremost a market shift. We start to think differently about media and as companies we are more accountable for what we do. Hence bespoke solutions based on solid tech and data input make our companies valued more within the marketplace to our clients. This is key to any business and not different in digital. However, it is still new to digital. Somewhat it shows how immature our markets had been prior to programmatic and with the increased value for customers, we ultimately create shareholder value.
Yet we should consider that we are just starting the shift, and that the old network model is still alive. It will be for a few years but slowly comes to an end over the next couple of years.
Please see below for the Slideshare presentation.