U of Digital Newsletter - 10/30/24 (premium)

October 23rd-October 29th // Estimated Reading Time: 9 minutes

Below is a roundup of last week’s notable industry news, with summaries and our opinions. Google reported Q3 earnings and IAS might be on the block…

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Top Stories 👁️ 

Integral Ad Science Explores Potential Sale
Source: Bloomberg
October 29th, 2024

Summary: Takeover interest has inspired Integral Ad Science (IAS) to take a look at a possible sale. The brand safety and ad verification vendor has tapped Jefferies Financial Group to help it consider its options. It's pretty early in the process, so there's not a ton of details available and no guarantee that an acquisition will actually happen, but it's an interesting development, nonetheless. 

The company was recently dragged into a controversy when research firm Adalytics published a report suggesting that its tech failed to flag brand ads running alongside offensive content.

IAS went public in 2021 at a $3.3B valuation. The stock has had a rocky run since then. As of this writing, the company was valued at ~$2B. Its largest shareholder is Vista Equity Partners, which holds a 40% stake in the company. As LUMA Partners’ Terry Kawaja noted, IAS is valued at less than 4x its net revenue and 11x EBITDA:

Opinion: Major buying opportunity for a strategic investor? Maybe! Or maybe not. IAS feels like a company that may be on the cusp of taking a nosedive.

Brand suitability and fraud continue to plague the digital advertising ecosystem, while marketers spend more and more money on brand safety technologies to “protect” themselves. It doesn’t seem to be working all that well. Marketers are starting to realize that there are many solutions out there that can help protect their brand and don’t require expensive brand safety tech; just a bit of attention to detail (e.g. inclusion lists, private deals, publisher direct buys, scrutinizing your supply chain, etc). Given that, and given IAS and direct competitor DoubleVerify have pretty much cornered the entire brand safety market, where will growth come from?

Growth will come from evolution. These companies will have to start evolving. We offer two ideas:

1. Align their incentives to outcomes

   • Instead of charging for tech, charge for the outcome the tech is striving to achieve (brand safe, performant campaigns). They will organically drive better results, their clients will be happier, the ecosystem will get cleaned up faster, and everyone (including these companies) can move on to solving bigger and better problems.

2. Diversify their business into new, adjacent areas

   • Speaking of solving bigger and better problems, these companies should be looking to grow into areas like media measurement, fraud detection, identity / addressability, ad serving, and more.

That second point gives you a sense of who we think could be a logical acquirer, acquiree, or merger partner for IAS. Companies like TransUnion, LiveRamp, Nielsen, Mediaocean, and Innovid could make some sense…

Q3 Earnings 📈

Alphabet (👍): Revenue was up 15% to $88.27B, beating estimates. Cloud revenue soared 35% to $11.35B, driven by AI products. Ad revenue growth is slowing, only up 10% to $65.85B. YouTube was up 12% to $8.92B. Profit was up 34%. Shares rose 6%.

Snap (👍): Revenue was up 15% to $1.37B, beating estimates. Global daily active users were up 9% to 443M. The company announced a $500M stock repurchase program. Despite lower-than-expected Q4 guidance, shares rose 10%.

Reddit (👍): Revenue was up 68% to $348.4M, beating estimates. Reddit posted its first profit ever, at $29.9M, compared to a $7.4M loss a year ago. Daily active users grew 47% to 97.2M. Q4 guidance beat estimates. Shares rose 22% in extended trading.

WPP (👍): Organic growth was up 0.5%, beating estimates. The agency holding company touted its big Q3 client wins, including Amazon's EMEA and APAC media business and Starbucks' US creative business. WPP maintained its 2024 guidance of flat or 1% decline in organic revenue. Shares rose as much as 5%.

Opinion: Wow, thumbs ups across the board! It’s especially encouraging to see Google turn in strong results, despite headwinds in its search business. Everyone likes to hate on Google, but when Google is doing well, it generally means the rest of the industry is also doing well. More earnings to come…

Other Notable Headlines ✍️

Magnite shares soar after bagging two-year extension from Disney for ad services - Magnite and Disney have expanded their relationship through a two-year extension that will include new types of inventory. Magnite is already Disney’s preferred supply-side platform (SSP) that handles transactions for the 30-plus DSPs Disney sells through. Moving forward, Disney will use Magnite's ClearLine product for one-to-one deals; ClearLine lets advertisers access inventory without a DSP. Disney will also use Magnite to expand to Brazil, Chile, Colombia, Mexico, Peru, and Argentina, as well as sell ads against college football games on live streams on ESPN. Disney will also use Magnite when it offers ESPN and ABC News podcast inventory in private marketplaces. Investors liked the news, which sent Magnite's shares 8.5% higher. Big win for Magnite, especially given the tough, current environment for SSPs and how much the DSPs have been encroaching on their territory.

Meta strikes multi-year AI deal with Reuters - The Meta AI chatbot will use Reuters' news content to answer user questions about news and current events. Meta's AI chatbot is part of the search and messaging features on Facebook, Instagram, Messenger, and WhatsApp. Meta will pay Reuters for this access to its work, but no word on whether Meta will also use Reuters' news content to train its large language model, Llama. Since 2020, Reuters has been one of Meta's fact-checking partners, yet Meta has largely retreated from news content. But all companies with AI products are under the gun to make sure that their AI chatbots provide accurate information, which is an ongoing struggle. Although this is Meta's first AI news deal, others like OpenAI and Microsoft have struck many licensing deals that give them access to publisher content to train their models.

Grubhub Launches Ad Business to Compete With Uber Eats and DoorDash 🔒- Grubhub is launching a standalone ads business to make it easier and more effective for brands to advertise on its website. Grubhub is working with ad tech companies Koddi and Rokt to power and sell ads, which will appear alongside search results and on the confirmation pages after people place orders. Most food-delivery apps already are in the ads business, so Grubhub is a bit slow to the party. UberEats, for example, is a big contributor to Uber's $1B annual ad revenue 🔒. Grubhub already offers managed services to large restaurants and a self-serve dashboard for small and midsize restaurants. But now with a standalone ads business, Grubhub hopes to offer better targeting and campaign management tools before expanding into offsite ads and non-endemic advertisers.

Microsoft to roll out new autonomous AI agents next month, fending off challenge from Salesforce - All three of the biggest makers of productivity software—Microsoft, Google, and Salesforce—are releasing autonomous AI agents. Beginning next month, organizations will be able to build their own autonomous AI agents within Microsoft's Copilot Studio. The agents, previously announced in May, can carry out specific tasks without supervision, acting as virtual workers. The move comes a month after Salesforce launched Agentforce, a platform now available to help organizations create AI agents. Meanwhile, Google may preview its own agent dubbed Project Jarvis, which is geared toward helping people automate web-tasks within Chrome, such as buying products or booking flights.

PAAPI Could Be As Effective For Retargeting As Third-Parties Cookies, Study Finds - The Privacy Sandbox's Protected Audiences API (PAAPI), which is meant to replace the functionality of retargeting, was 86.4% as effective as third-party cookies for generating clicks when results were normalized for ad spend and impression counts, according to a recent experiment by researchers at BU and the UK’s Competition and Markets Authority. PAAPI was also 81.8% as effective for click-through conversions per dollar. Promising, but also, lots of caveats to consider.

Other Notable Headlines
(that you should know about too) 🤓 

Nicolle Pangis Joins Netflix as VP Advertising - Pangis, most recently the CEO of cable ad-sales company Ampersand, will be Netflix's new VP of ad sales (the role vacated by Peter Naylor in July).

Fox Announces Major Ad Sales Restructure - Fox will keep sales executives for its content verticals in sports, news, entertainment, and Tubi, but it will adopt a cross-portfolio model for operations, technology, and strategy.

DoubleVerify Expands Measurement To LinkedIn Video Ads - LinkedIn will offer media quality measurement for in-app video ads as it pushes deeper into video.

Hightouch Untangles CTV Advertising with Unified First-Party Targeting and Measurement Solution - The company says its composable CDP makes it easier to build, match, and activate CTV audiences.

X Revamps Ads Platform - The redesign is aimed at attracting more small businesses to advertise on the struggling platform.

Disney+ and Hulu ditch App Store In-App Purchase billing as latest round of price increases goes into effect - Disney is the latest streamer to ditch Apple’s in-app purchases and avoid Apple's 15-30% commission.

Publicis Groupe lays off up to 200 digital agency employees - Publicis will lay off 150-220 people from its digital experiences agencies. Last week, Publicis also let go of 100-150 employees at its media agencies for non-compliance with its return-to-office policies.

Apple Intelligence rollout started Monday – how will marketers use the new AI features? - Marketers will gain some valuable insights that could unleash greater personalization.

Vibe.co Hopes Its AI Tools Will Help Bring Back The Wacky Local TV Ad - One of the new tools, called “Vibe Studio” can spin up a snazzy 30-second CTV spot for a small business in less than a minute!

Over 200,000 subscribers flee 'Washington Post' after Bezos blocks Harris endorsement - That's about 8% of the Washington Post's 2.5M paid subscribers. Ouch. 

That’s It For This Week 👋

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