AppNexus Scores $1.2 Billion Valuation For New York Ad Tech Scene

Aug 19th, 2014 | By | Category: Ad Operations

The New York ad tech community has a billion-dollar company at last, and it’s Brian O’Kelley’s AppNexus after all.

Weeks after rumors linked Chinese e-commerce company Alibaba to an investments, AppNexus has announced a new late-stage funding round that values the company at $1.2 billion, nearly doubling the valuation of the company from its last fund raise in January of 2013. The funding comes from an unnamed public equity firm in Boston, with an additional $40 million in room allocated for other investors, many of them strategic partners and existing investors, to join in a second close.

The valuation is “clean,” says O’Kelley, AppNexus’ cofounder and CEO, meaning it does not have the preferences and downside protections that many late-stage investors favor. Those terms can often encourage inflated valuations as investors are guaranteed their money back and often more, regardless of what happens to the company in the future.

“We needed to be able to go to companies and say, we are as good as a public equity. We can’t disclose our investor, but these guys don’t play games. It’s a clean, real valuation we can take to the bank and use to acquire companies and show employees the incredible value of our stock.”

AppNexus knows venture investors well, having raised more than $200 million to date from firms like Andreessen Horowitz, Khosla Ventures, First Round, Venrock and SV Angel. Its last round was led by Technology Crossover Ventures, a growth-stage firm, and it also has a debt facility of $75 million with Silicon Valley Bank. The company provides technology that allows publishers and advertisers to buy and sell digital ad inventory automatically through ‘real-time bidding,’ both on your desktop and over mobile phones. 30 billion such ads are auctioned and sold across AppNexus each day.

The company took in revenue of an estimated $130 million last year, off $1 billion in transactions across its platform. The company expects that run-rate to double to more than $2 billion in 2014.

AppNexus’ CEO has long positioned it as a leader of the New York ad tech community. O’Kelley calls himself the inventor of real-time ad exchange and is known in the industry for his out-sized personality as much as his company’s growth.

There’s a big difference in O’Kelley’s spiel this time around: AppNexus is actually profitable now, recording its first quarter in the black in the second quarter of 2014. And revenue has doubled since last January, O’Kelley says, while the company kept half its previous funding round still in the bank.

Should its growth continue at that pace, AppNexus’ next milestone will likely be starting the IPO process. O’Kelley wouldn’t give a timetable, but says the company chose a public equity investor as a step in that direction. O’Kelley will seek an eventual market capitalization more in line with fast-growing software-as-a-service vendors than his ad tech peers, many of whom have struggled since going public like Millennial Media, Rocket Fuel, video stocks like Tremor Video and YuMe, and more recently Rubicon Project, which soared on its opening day but now trades at half of its April highs.

“We are in a weird overhang moment in ad tech where the public markets value ad tech companies pretty poorly vis a vis the private companies,” O’Kelley says. He confirmed that Alibaba had been in talks with AppNexus this spring.

“One of the biggest challenges is we got valued on public comparisons, not strategic ideas, and ad tech recently lost half to two-thirds of their market values as a group.” The exception, O’Kelley says, remains Criteo, which went public last October and now carries a market cap just under $2 billion. But large ad tech shops like MediaMath, Turn, Mediaocean and AppNexus have preferred to wait out the market so far, preferring to raise tens of millions at valuations that until today were mostly in the $500-$700 million range.

O’Kelley says that fragmentation is the biggest problem limiting ad tech growth. “It’s an industry with a lot of niches, where standalone companies are dominant in just the single niche. Even for larger companies, moving into a second business channel can be a heart-wrenching two-year process.”

appnexus-b-19-8-14

AppNexus knows that first-hand from its push into mobile. Late to the game, O’Kelley pumped at least $25 million into establishing a presence in mobile ad transactions last year; this year, the company disbanded its mobile team and announced that mobile would now be a top priority for all 600 employees across all business teams. “It was really smart or really stupid,” O’Kelley says. Revenue from mobile is still modest, he adds, but is the company’s fastest growing vertical.

As even O’Kelley will readily admit, a billion-dollar valuation is just one step in that path, and the public markets could still prove unforgiving to what AppNexus is selling. But for now, the company’s at least in pole position among the ad tech hopefuls looking to win on Wall Street in the near future.

[source: Forbes.com]

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