Marin Software Rocks Wall Street
Tech IPOs don't always play out as expected -- ask Facebook -- but in Marin Software's case, the surprise was how well the stock did in its first day of trading. Its initial share price was already set higher than the anticipated range, but investors pushed it 16 percent higher. Now the company's real work begins. It will need to use its $105 million cash haul wisely to compete with the big search engine marketing players.
As initial public offerings go, Marin Software couldn't have asked for much better than its Friday debut on the New York Stock Exchange.
Late Thursday, it priced its stock at US$14 per unit, higher than the anticipated range of $11-$13. Then it sold 7.5 million shares -- half a million more than originally expected -- raising about $105 million. Investors drove the share price up Friday by some 16 percent to close the day at $16.26 per share. Monday morning Marin was trading at $15.52 per unit.
Marin offers a digital ad management platform. So far it has focused mainly on search advertising, but it also offers tools for managing display, mobile and social advertising.
With the performance of tech IPOs mixed over the last few years, Marin's debut brought a sigh of relief to the search engine marketing space. The real question, though, is how will it leverage this performance for the long term?
More to Come?
For the SEM industry, now is the time to savor Marin's good day and look forward to similar IPOs to come.
"The entire SEM industry was cheering for a successful Marin Software IPO," Larry Kim, founder and CTO of WordStream, told the E-Commerce Times. "This is hopefully a good sign for others in the space, too."
That said, Marin Software is going up against two of the most established companies in the tech space -- Google and Adobe -- and it will need every dollar of its cash haul to stay competitive.
Keeping Its Hand In
For starters, Marin is going to have to demonstrate why it has a superior platform, Richard McCarthy, a computer information systems professor at Quinnipiac University, told the E-Commerce Times.
"Their first challenge is creating their market space. The next hurdle that causes some software companies to grow and others to fail is that software cannot remain stagnant, otherwise the product dies," he said. "They have to invest in continuing to improve it to show that their software adds value to their customers."
There are some tangible near-term steps the company should take, suggested Bruce White, also a professor of computer information systems at Quinnipiac.
First, Marin should "carefully expand its staff and offices," he told the E-Commerce Times. "Currently they have 13 offices and 400-plus employees worldwide, but with the influx of cash, they will be on a talent search and a location search to grow in the digital channels area."
The growth plan should be the same one all successful startups follow -- "expand carefully, don't put too much money into physical palaces, run lean and mean, and keep their eyes on the customer," advised White. Also, "keep their eye on the ever changing digital channels area."
$105M Goes Fast
When it's all said and done, Marin Software will need to spend cautiously, despite the huge war chest it netted from the IPO.
Marin's operating cash flow in 2012 was a negative $19 million, and they finished the year with about $30 million in cash, Covestor model manager Barry Randall told the E-Commerce Times.
"The first order of business is to replenish the working capital balance of the company," he said.
Marin's primary problem is that even accelerating revenue growth hasn't yet resulted in profits, Randall continued.
"The company's revenue growth was 65 percent in 2012 versus 2011, yet its operating loss widened from $17 million to more than $25 million in that time," he pointed out, "and we know from recent experience with companies like Groupon that Wall Street is barely tolerant of companies whose hoped-for profitability seems to edge away over the horizon."
Marin is currently trading at about five times revenue, which isn't extreme, Randall said -- "but woe unto the company if revenue growth starts slowing without enough of their revenue falling to the bottom line."