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Exponential Interactive, an Emeryville, CA based ad network filed for an IPO on March 16, 2012.

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Here are some interesting details from the S1 filing:

  • Exponential’s CEO – Dilip DaSilva owns 74.90% of the shares currently. His family trust also owns an additional 5.11%.
  • They are looking to raise around $75 million dollars
  • The current stock price for accounting purposes is $2.75. This assumes a 6.5x multiple.
  • They are operating in 25 countries.
  • They have closed down their EDU lead generation division and are in the process of transitioning the clients to CPM buys on the core network. Their EDU product generated 5% of the 2011 revenue which equates to ~$8.45 million dollars. If they can not transition these clients to the CPM side of the business they expect to see a 5% decrease in revenue.
  • The Full Tango direct response is not mentioned much. In fact revenue is not really broken out by division.
  • The majority of international growth is coming from a physical presence in each country and increasing the number of sales people internationally.
  • The acquisition of AdoTube, a Ukranian video site will cost Exponential around $19 million dollars after all the earn outs are completed.
  • A major margin builder for the company has been acquisitions of content sites like TechBargains.com.
  • 2011 Gross Margin is 43.3% which is slightly above the industry standard of 40% for ad networks.
  • Gross Revenue Growth from 2010 to 2011 was 35.2%.
  • Stock symbol will be “EXPN”
  • International revenue grew 80% from 2010 to 2011. US revenue grew 20% in the same time period.
  • AdoTube generated around $10.3 mil in revenue in 2010 at a 54% gross margin.
  • $14.2 mil in cash on hand at the end of 2011.

Overall, Exponential is a solid company throwing off a healthy amount of cash each year.

There are some concerns to note in the S1 which could play into things over the coming months:

  • A change by large competitors like Google, Facebook and Yahoo! could alter the advertising landscape completely.  Is this anything new? No, but a company’s ability to navigate these changes and adapt to them will be key to their long term success.
  • The CEO is named as a risk because of his involvement with the core technology and his large percentage of ownership.  He has had a solid track record with running the company but how will the pressure of being a public company affect him? Will he be able to balance working with shareholders and working on the core tech platform? If not, will Alex the CTO be able to lead the tech platform into new areas?
  • There is no clear mobile strategy. Mobile ad inventory is increasing rapidly and taking away from desktop based inventory. Engagement rates are sometimes higher on mobile devices which could lead to greater top line revenue. However, Exponential does not mention a clear way to penetrate this market. This could severely limit growth potential long term.
  • Their international footprint is highly subject to currency fluctuations and global economic factors.
  • More than 80% of their revenue comes from recurring clients. Are they able to penetrate into new advertisers or has their inventory not that attractive? Or have the advertisers started to move more budget towards social platforms like Facebook?
  • From a competitive standpoint, it is hard to say if any of the ad networks have technology that is really differentiated. Even if they do, the lead that may develop from a differentiated technology is mitigated by the inventory they represent. The core of the network is really the relationships they maintain with their publishers. A significant risk is that these publishers are rarely loyal.

The above information is not intended to be financial advice in any way.