Marin Software Readying an IPO

In a recent report, research firm Global Industry Analysts predicted that the global online advertising market will grow to $84.8 billion by 2017. This growth is attributed to increased use of mobile, online video, and social networking advertising platforms by small and medium enterprises (SMEs) and e-commerce companies.

Marin Software’s Financials
San Francisco–based Marin Software provides online advertising management platform for advertisers and agencies. Marin was founded in 2006 by entrepreneurs Christopher Lien, Wister Walcott, and Joseph Chang to help advertisers manage search advertising campaigns. Today, their platform helps manage paid search, social media, display advertising, and mobile campaigns. Their tools provide advertisers with the capability to manage workflow, reporting, and optimization needs.

They currently manage advertising campaigns of more than 1,500 customers, some of which are big names like Razorfish, the University of Phoenix, Macy’s, PriceGrabber, and Salesforce.com. Last year, Marin Software earned more than $36 million in revenues, and the company projects growth of 50% this year. Marin has not disclosed earnings on these revenues.

To date, Marin Software has received funding of $80 million. In February 2012, it raised $30 million funding in a round led by SAP Ventures and the Singapore-based investment firm Temasek. Analysts believe that the introduction of Temasek will help the company to expand in the emerging markets of Asia Pacific. Other investors include Amicus Capital, Benchmark Capital, DAG Ventures, Focus Ventures, and Crosslink Capital. Marin Software plans to invest these funds in product development and market expansion. It already has lofty growth plans and proposes to hire more than 120 employees this year. The company ended 2011 with 330 employees worldwide.

Analysts are looking forward to the IPO, and the company’s management has confirmed that they are looking to choose bankers for the IPO in the next few months.

Marin’s Product Expansion
Marin Software earns revenues by charging their customers a percentage of the advertising budget managed on their platform. Analysts believe that their fee ranges from 5%, declining to 2% as the marketing expenditure increased. Marin Software’s tools help advertisers increase conversion on clicks, thus reducing their cost per click (CPC). Its customers can manage online ad campaigns and evaluate performance of a campaign through reporting and bidding tools. The company allows customers to set up goal-based bidding to maximize performance objectives and forecast performance based on past trends. Its bidding algorithm is able to accommodate multiple business models and thus optimize spending based on cost per acquisition, return on ad spending, margin, and targets.

Within the U.S. display advertising market, social media player Facebook’s market share has grown significantly from 21% in 2010 to 27.9% in 2011. Marin Software is focusing on capturing the advertising dollars being spent on the Facebook platform. Toward the end of 2010, it released advanced applications for advertising on Facebook. It began by offering advertisers the ability to manage Facebook Ads by providing solutions that included algorithmic bidding, audience segmentation, and ad rotation features. Marin Software’s applications let advertisers segment their target demographics by gender, age, geography, and the likes and interests of audiences. Today, its Facebook tool also provides advanced reporting on ad campaigns and helps optimize performance of ads according to user interactions by tracking Facebook “Likes,” RSVPs, and app installations. It helps to calculate appropriate bids for each ad given cost-per-action targets and automatically adjusts bids daily to maximize Facebook conversions.

Online advertising is a high-growth market. The Interactive Advertising Bureau’s recent report cites that online advertising grew 15% last quarter to $8.4 billion. At present, Marin Software manages $3.5 billion in annual spending of this market. Surely the company has a strong opportunity to grow, and a strong business model to execute on.