Jefferies & Co. believes that Google Inc., Apple Inc., Adobe Systems, Microsoft Corp., and the large advertising agencies are potential acquirers of Velti Plc (NASDAQ: VELT).
We believe that the bigger players will be acquisitive in mobile marketing over time to complement their mobile advertising and desktop advertising/marketing platforms, said Peter Misek, an analyst at Jefferies.
Larger companies have been acquisitive in mobile advertising. In May 2010, Google bought Admob, and in January 2010 Apple acquired Quattro. Apple and Google paid 12 times and 13 times bookings, and while those acquisitions (Quattro and AdMob) are not perfect comparable to Velti, they do validate the size and market opportunity, in Misek's opinion.
Misek believes the U.S. mobile marketing represents an attractive revenue opportunity for Velti. IDC estimates U.S. Mobile Internet advertising will grow to $2.5 billion in 2013 from less than $1 billion in 2009, a greater than 30 percent compound annual growth rate (CAGR). Currently, the company generates 5 percent of its revenue from the U.S.
To capture the potential growth in the U.S., Velti acquired Ad Infuse in 2009 and subsequently acquired MobClix and Media Cannon. Misek believes that while the US is more mature in smartphone penetration, app ecosystems and technology usage; mobile marketing appears to be more mature in Europe.
Misek said his anecdotal evidence suggest that large multinationals have been using mobile devices to great success to drive brand awareness, consumer actions and importantly anonymous data collection.
Mobile marketing and advertising is a nascent market overall but momentum, in Misek's opinion, is slowly building among corporations and advertising agencies. While mobile ad spending is relatively new, awareness of the benefits of mobile is increasing at a rapid rate, and multi-national corporations have begun to allocate a defined percentage of their advertising budget to mobile.
Gartner predicts that global mobile advertising will grow from $530.2 million in 2008 to more than $13 billion in 2013, a 74.3 percent CAGR. Misek believes growth will be mainly driven by increasing use of mobile devices, especially tablet PCs capable of consuming rich media and smartphones.
Misek expects tablets will grow from 20 million units shipped in 2010 to well above consensus estimates of 60 million in 2011 and continues on a strong upward trajectory. Misek estimates smartphones will grow from 22 percent of handset shipments in 2010 to 30 percent in 2011 to 38 percent in 2012.
Misek believes the additional functionality of smartphones and tablets will drive more interesting and interactive marketing campaigns and ads as well as greater usage, thereby increasing total available market.
According to IDC, the U.S. Mobile Internet advertising spend was $280 million in 2009 and they estimate that it will grow to $2.5 billion market by 2013, a CAGR of 76 percent. More important, mobile is the fastest-growing part of spending on Internet advertising. Jefferies Internet analyst Youssef Squali estimates that the global Internet advertising market will grow from $41 billion in 2007 to $69 billion in 2012, an 11 percent CAGR.
Misek said Velti has relatively low penetration in the U.S. market versus iLoop and Vibes who have greater share, but Velti has recently been acquiring intellectual property and customers that should allow it to expand its domestic base. The global capability and platform approach should drive growth, in Misek's view.
Velti is an industry leader in mobile marketing and advertising, a market that is just now beginning to receive independent budgetary attention from advertisers. The company sells SaaS (Software as a Service) to customers who span the globe and the mobile marketing food chain from carriers and agencies to publishers. Velti’s SaaS-based model has enabled revenue growth that has outstripped the market over the past two years.
Velti has enjoyed double-digit growth in the last two years and Misek believes the growth of mobile marketing should support Velti’s revenue growth more than 30 percent CAGR in the next few years. According to Gartner, worldwide mobile advertising revenue is expected to grow from $1.5 billion in 2010 to $13.5 billion in 2013.
Misek expects Velti is well positioned to capture revenue share from customers given the company’s global scale and increasing brand recognition. Misek forecasts annual revenues to grow about 50 percent each of the next two years.