- The broader digital media industry has received much attention in recent years, due in part to a series of headline grabbing initial public offerings of popular social media platforms such as Twitter, Groupon, LinkedIn, and Facebook and a mega merger of two traditional forces in the advertising agency world – Omnicom and Publicis – that was largely driven by digital media concerns, issues, and opportunities. Underlying all of this activity has been a surge in digital advertising efforts and spending by marketers and brand owners, on one end, and a proliferation of digital media content and web publishers on the other.
- Companies in the digital advertising space help marketers and brand owners to create digital advertising campaigns, place advertisements across the various digital media outlets (search, display, video, social, mobile, etc.), optimize those campaigns, and evaluate their effectiveness in reaching their intended target audience.
- Digital ad spending is forecast to increase at a 10.8% compound annual growth rate (“CAGR”) from $36.8 billion in 2012 to $61.4 billion in 2017, according to eMarketer. Comparatively, total media ad spending (i.e., TV, digital, print, radio, outdoor, and directories) is forecast to increase at a CAGR of only 3.6% during this time period. Overall, digital ad spending is forecast to increase from 22.3% of total media ad spending in 2012 to 31.2% of total media ad spending in 2017.
- Of the total forecasted digital ad spend, the share attributable to mobile is expected to increase from $1.6 billion, or 5.0%, in 2012 to $31.1 billion, or 50.7%, by 2017. Overall, digital ad spending related to the mobile platform is projected to increase at a CAGR of 47.9% between 2012 and 2017.
- Internet traffic volume, a key indicator for the overall digital advertising industry, is forecast to increase at a CAGR of 27.7% between 2013 and 2018 based on exabytes per month, according to IBISWorld.
- Publicly traded companies in the digital marketing space generally trade at higher valuation multiples relative to the overall market due in large part to the attractive growth dynamics in this sector. Specifically, the public companies presented on the following page exhibited median enterprise value (“EV”) to revenue and EV to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples of 3.24x and 18.5x, respectively, as of March 2014, compared to average EV to revenue and EV to EBITDA multiples for the broader S&P 500 universe of approximately 1.9x and 10.2x, respectively.
- Not surprisingly, the digital marketing space has been one of the most active sectors for M&A activity in recent years, with companies often trading at a premium relative even to the lofty multiples exhibited by their publicly traded peers. Since 2012, the median EV to revenue multiple implied by the selected merger and acquisition transactions presented on the following page was 7.1x.
U.S. Digital Ad Spending
Internet Traffic Volume
Summary Valuation Metrics