July 28, 2015 - 6:14pm EST by
2015 2016
Price: 14.21 EPS -0.82 -0.44
Shares Out. (in M): 34 P/E 0 0
Market Cap (in $M): 480 P/FCF 0 0
Net Debt (in $M): -88 EBIT -4 26
TEV (in $M): 392 TEV/EBIT 0 15.1

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TUBE is a demand-side ad tech platform that practices fee and price transparency, and inventory-agnostic buying capabilities for its users across a growing array of digital mediums.  TUBE shares represent a high-risk, high-reward growth stock with a big market and growing market opportunity, and first-mover status.  TUBE shares offer ~90% upside over the next ~3 years, with assumed reasonable revenue and EBITDA multiples.  The company has $88MM of cash on its balance sheet, 33.77MM shares outstanding post-secondary, no debt, burned $17MM of cash on a ttm basis and growing revenues and ad spend through its platform at 40% and 50%, respectively, as of mrq YoY.  I estimate FCF burn of just a few million dollar for 2015 and FCF breakeven in 2016, inclusive of 30% per annum expense growth. 

TUBE's platform represents a single portal to multiple screen mediums, multiple inventory providers, with an array of filtering mechanisms to reach targeted audience and to toggle campaign ad spots based on real-time analytic feedback data.

While still de minimis to consolidated results, TUBE is showing exponential growth in revenues from mobile  ad spend (Platform Direct client spend is now 12% channeled to mobile vs 7% for 2014 full year).  Also, the company has raised guidance due in part to increased programmatic TV client ad spend (a very recent offering by TUBE and largely a nascent way to buy TV ads).  Furthermore, it signed a deal to put digital outdoor ad inventory onto its platform.  

Tubemogul is offering advertisers the ability to target a multitude of socioeconomic, demographic, and geographic viewers across any digital medium – TV, Digital outdoor, Mobile and Desktop.  Tube charges a fee on ad spend and leave it to the customer to use their system to find the cheapest inventory that delivers targeted viewers.  The company offers clients an entirely fee-transparent, media cost transparent experience, a wide array of inventory filtering and searching capabilities, and is ultimately inventory agnostic with respect to the ad buyers ultimate purchased media spot.  

Thesis Summary

·         Revenue growth is obfuscated by two dynamics:

o   Revenue recognition.  Shifting of client ad spend from one segment (Platform Services) to TUBE’s self-serve Platform Direct.  The latter is nearly 100% margin but recognized revenues for the same $1 of ad spend for Platform Direct will be about 1/4th those of Platform Services.  The company brings new clients in using its Platform Services offering and then seeks to transition them to Platform Direct.  Naturally, this creates top-line revenue pressure, as reported, against the growing ad spend behind the TUBE platform.

o   Seasonality.  Q1 is notoriously the weakest season for ad spend.  The company’s Q1 top-line just inched over the top end of its guidance range ($31MM vs 28-30 range), and gross profit hit the upper end of the range ($22MM vs 20-22 range).  Client Ad spend came it at $71MM vs guidance of 68-70.  Maybe a high-growth ad tech firm shouldn't yet see seasonal trends but the reality is that revenue was down $6MM sequentially despite client ad spend being up almost $10MM (this is due to revenue recognition and the company emphasizing clients to switch from Platform Services to its Platform Direct offering, as noted above).   Note blomberg shows Q1 '15 revenues erroneously in the Consensus Earnings Overview section, at $22MM (which were revs in Q1 '14) instead of actual reported revs of $30MM.

·         Secondary offering coupled with some VC backers’ shares being sold in the secondary create a negative perception for the company.  The story is really that ad tech was getting smoked at the time of TUBE’s IPO, so the company halved its original IPO price talk and came back to the market this year to complete the fundraising target for fresh cash.  Meanwhile, VC backers bought into the IPO, adding to their stakes, and have sold only a fraction of that IPO purchase allocation through the secondary offering.

·         Ramped up spending has the market spooked. R&D expenses (TTM YoY) are up 100% and Total OpEx is up 80% over the same period. 

o   However, this company is building a platform and building out this platform across more than just the desktop medium (integrating buying capability for digital billboard, mobile, and TV).  Expenses must precede revenue generation. 

o   Stepping away from the GAAP framework, economically one could argue that certain of these expenses could be capitalized as revenue generation from these expenses will continue for years into the future.

·         Very limited sell-side coverage that is implicitly or explicitly not including TV revenues into their TUBE forecasts, despite the company inching up its guidance due specifically to early successes with programmatic TV.

·        TUBE is a rare platform in that it was built from the ground up and is not cannibalizing any existing related entity.  The advertising industry is loath to change. For TV, especially the upfront, media execs who pick up the phone to book inventory are naturally resistant to any platform that will eliminate their jobs.  Exchanges in many cases have been accused of being less than transparent on fees and underlying inventory costs and for promoting their proprietary inventory (whether related or pre-purchased) ahead of truly 3rd party inventory.  

·         There is plenty of industry forecasts and opinions indicating more ad dollars will flow into digital and mobile (for instance, many properly show that time Spent on digital/mobile is more than time spent watching TV, yet TV ad spend still outpaces digital spend).  TUBE will benefit from the spending shift to programmatic on TV and digital outdoor, and will continue to penetrate mobile as ad buyers launch comprehensive campaigns across several mediums through TUBE's single access platform.  The company's software represents a better mousetrap.  Accordingly, as TUBE extends its reach deeper into mobile (where ad blockers don't work on Apps!) and beyond digital in general, I'm less concerned about headlines regarding Apple's ad blocker.

Quick Background

Ad buying used to be much simpler: A handful of TV stations viewed only in a linear fashion (no DVR or VOD), with some print media such as newspaper and magazines, and terrestrial radio.  To measure TV viewership, Nielsen’s sample-based measurement worked well as viewers watched in largely an undistracted manner.  Today the landscape is much different.  Hundreds of TV channels with the ability to DVR or watch VOD, streaming over the top, watching TV live while skimming Facebook on an iPad or tweeting on your phone or surfing the internet.  “Fragmented” viewership is what the industry calls it. Semi-accurate measurement of viewership across all these screens has been challenging as has it been for advertisers to reach their target audience in an engaged fashion.  Simply advertising on the biggest prime time show is pricey and not always effective.  Advertisers and their agencies will be better served as measurement statistics and access to inventory is consolidated through a single portal. Enter Tubemogul. 

Rentrak, a census-based set-top box measurement currency for TV, talks frequently about the idea of swapping out ads via DVR and VOD content at the local level, even the household level (not unlike ads on a webpage being geared specifically toward you).  TUBE is a platform that can provide this aggregation for the ad buyer.  (While a totally different business, RENT has similarities to TUBE in that one deal at a time it has create a more valuable and relevant platform.)

Poorly timed IPO

The company originally planned to raise $94MM at a price range of $11-13/share, through the sale of 6.25MM shares.  Instead, it sold shares on 7/18/14 at $7 to raise $43MM.  Two of TUBE’s VC backers, Foundation Capital and Trinity Ventures, supported the failing IPO offering by increasing their stakes by $20MM and $5MM respectively, and owning 26% and 22% of the company as a result.

Just a few days prior, Yellen had called startups’ valuations in some cases, “substantially stretched” at the same time that YuMe and Tremor were reporting weak results.  Forbes had published an article a month prior titled “The Market's Hammering Ad Tech Again, So Big Private Shops Go Back To The Well” (

The company had to come back to the market again to complete its targeted funding amount, this time in June 2015 to sell 3.5MM shares at nearly $16/share ($15.75 to be exact) to bring in another $52MM in fresh capital net of expenses.  Notably, in addition to TUBE’s 3.5MM shares sold, selling stockholders sold an additional 1.76MM as part of the secondary.  Headlines showed Foundation as trimming its stake, without noting the context that the shares they sold represented less than 5% of their total position and less than 15% of the shares they took down in the IPO, and without noting that these shares doubled in price since the IPO.  Hardly a bearish signal.

Revenue reporting

·         Platform Services (53% of revenues, 22% of client ad spend for Q1 ’15): TUBE first brings clients in using its Platform Services.  This is similar to some other ad tech and ad agency models, where the company (TUBE) reports 100% of the client’s ad spend and is tasked with delivering an ad campaign that delivers the targeted viewership that the advertising is seeking.  Additional profits or losses can occur as TUBE locks up inventory that may be more or less expensive than anticipated to deliver that audience.  Cost of revenues include media acquisition costs and represent 50% of revenues (or 100% markup, consistent with the rest of the industry).

·         Platform Direct (47% of revenues, 78% of client ad spend): TUBE then transitions customers to Platform Direct, its self-serve platform.  It views this offering as a way to be labor-light and reduce media acquisition cost risk.  The company believes it also creates stronger relationships as the company (or its ad agency) is itself finding and executing ad inventory through the system.  ONLY fees, charged as a percent of the client’s ad spend, are reported as TUBE revenues.  This fee rate is 26%.

·         RESULT: For every dollar of ad spend that transitions from PS to PD (as the company wants to happen), reported revenues fall by 74%.  By the same method, we could say that if 100% of TUBE's client spend went through its PD segment, its TTM revenues would have been reported  28% lower and its EV/Rev multiple almost a turn and a half higher.



 Forecasts and Upside






"Comparable" publicly traded firms

  • Tremor relies on inferior cookie-based technology. The company also buys ad inventory upfront at times, on a speculative basis and in bulk; and is biased to filling that inventory.

  • YuMe is relying on agency relationships to coordinate their programmatic TV buys with their spend through YuMe that will buy digital ad spots.  YuMe can reach connected (smart) TVs but as of yet doesn’t have integration with linear television.  The company also has certain purchased proprietary inventory of its own to deliver to client ad spend.  Cuyler provides a good write-up on YuMe here (

  • Millenial Media is a mobile ad network.

  • Rocket Fuel is essentially a black box that manages on a full-service basis ad spend for clients (not unlike TUBE’s Platform Services but with less transparency around underlying media costs).  There is a spot-on Short Thesis write up on VIC for from Dec 2013 on FUEL: (

  • Rubicon is a supply side platform with tremendous internet reach that is an inventory supplier to TUBE.

  • Rentrak and Criteo are essentially big data, data analytics and measurement companies that measure viewership, Criteo more on the web and Rentrak more with all forms of television largely via set-top box data.  



M&A transaction comps

Some strategic M&A comps are relevant.  Notably, TUBE has a staggered board (each seat at 3 year terms) with some larger, concentrated shareholders who might be opposed to TUBE selling itself too soon.


Client Stats

Growth rate of new clients may be slowing, but clients continue to spend more through TUBE's platform direct system.

Company quotes that 72% of clients who made ad purchases through TUBE in 2011-2013 period also purchased in 2014.


Notable partnerships & milestones

·         July 20, 2015: Partners with placemedia, to provide access to 96mm households for linear TV.

·         May 11, 2015: Partners with CADREON to jointly build an inventory-agnostic platform for automated TV buying.

·         May 4, 2015: TUBE announces partnership with ad exchange SiteTour to allow TUBE customers to buy Out-of-the-home/Outdoor digital inventory in Australia programmatically through TUBE.  Inventory available includes digital billboards, kiosks, and elevator screens.

·         April 6, 2015: Ad agency Hill Holliday partners with TUBE to use TUBE’s platform to consolidate its programmatic buying efforts for its clients.

·         Feb 27, 2015: TUBE and Cox announce partnership that allows TUBE customers to buy ad inventory programmatically across both local linear TV and digital video (tablets/mobile).

·         Feb 19, 2015: Quiznos (the sub shop) announced they’ll be consolidating video ad purchases through TUBE’s platform.

·         Feb 4, 2015: Heineken USA announces TUBE as its exclusive video ad partner for domestic purchases and will consider using TUBE for int’l ad campaigns in future.

·         Jan 30, 2015: Mondelez used TubeMogul to buy Super Bowl ad spots programmatically for Ritz and Oreo.   Note that this is still a “toe dipping” exercise given that spots were purchased and aired on a regional basis – in Erie PA  to approx. 100,000 viewers. (

·         Dec 4, 2014: TUBE formed an exclusive partnership with WideOrbit to advertisers to purchase TV and Digital Video inventory on a single platform. (  Wide Orbit is the standard for broadcast TV to manage and sell its ad inventory, with approx. 75% market share.

·         Dec 4, 2014: Launched PTV.

·         Nov 11, 2014: MARC USA

·         Sept 5, 2014: Nielsen certifies TUBE for mobile online campaign ratings.

·         Aug 2014: Nice Advertising agency in California announces TUBE partnership to streamline their planning and buying efforts.

·         Aug 12, 2014: TUBE name first buy-side partner for AudienceXpress

·         Dec 4, 2013: Lenovo names TUBE as global partners to execute its programmatic video buys.

Sept 30, 2013: Partnership with IPG Mediabrands to integrate TUBE technology and inventory access into IPG’s programmatic platforms for UK, Japan, and Australia.



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


  • Better results out of seasonal trough.
  • Deeper penetration into Mobile away from purely desktop.
  • Success with TV via PTV offering.
  • Mgmt continues to land bigger, higher profile clients.
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