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Brief Mobile Software Market Update & Ecosystem 2Q13 2Q13 B dW k BradW eekes Vice President

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Page 1: Brief Mobile Software Market Update Ecosystem 2Q13€¦ · Brief Mobile Software Market Update & Ecosystem 2Q13 BdWkBrad Weekes ... mobile ecosystem with the iPhone, failed miserably

Brief Mobile Software Market Update & Ecosystem

2Q132Q13

B dW kBrad Weekes Vice President

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Disclaimer

The information contained in this Report is obtained from sources we believe to be reliable, but no representation or guarantee is , p gmade about the accuracy or completeness of such information, or the opinions expressed herein. Nothing in this Report is intended t b d ti f ifi itto be a recommendation of a specific security or company or intended to constitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Software Equity Group LLC may y , y y q y p yhave an interest in one or more of the securities or companies discussed herein.  Financial data provided by Capital IQ.

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Mobile Software Landscape – Select CompaniesMarketing & AdvertisingMarketing & Advertising Commerce & PaymentsCommerce & Payments Content & EntertainmentContent & Entertainmentyy

Social & MessagingSocial & Messaging EnterpriseEnterprise HealthHealth

InfrastructureInfrastructure

Development Platforms Security Converged Communications

AnalyticsLBS

Acquired Public

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Public Market Performance of Select Mobile Software Providers14.5x ObservationsObservations

EV/Rev M lti lEV/Rev M lti l

• Majority of high performing mobile companies have demonstrated an ability to monetize through advertising and stand to be major beneficiaries of the forecasted growth in mobile advertising spend

14.5x13.7x

9.6x8.1x

7.1x 6.7xMultipleMultiple

• Millennial Media’s EV/Revenue (2.9x) has come down considerably from its IPO when it hit 17.9x, as competition with Google and Facebook for mobile ad dollars intensifies

4.7x3.9x 3.9x 3.3x 2.9x 2.9x 2.8x

1.5x 1.2x 0.8x 0.6x 0.5x 0.3x 0.1x 0.1x

• Security firms are performing extremely well,  benefiting from enterprise security concerns as BYOD continues to gain momentum

122%

TTMTTM

• Opera has succeeded while many of its peers, who were also already in mobile before Apple dramatically altered the mobile ecosystem with the iPhone, failed miserably.  Opera has pivoted its business 

d l ff tti d li i it l73% 69% 66%55%

42% 36% 36% 34%23% 19% 19% 16% 12% 11%

TTM Revenue Growth

TTM Revenue Growth

model, offsetting declines in its legacy business of mobile browsers with rapidly growing advertising and bandwidth management revenue

• Game providers are struggling due to 0% 0% 0%

‐3%‐11%

‐34%

inconsistent performance, lack of differentiation and difficulty in monetizing mobile as well as they have historically done on the web

• Some legacy mobile software providersSome legacy mobile software providers are struggling to adjust their business models from carrier centric to app store/OEM centric

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TTMTTM

RevenueTTM

GrossTTM

EBITDA EV/ EV/Forward

EV/Forward

EV/YTD

Stock

Public Market Performance of Select Mobile Software Providers

Company Ticker Market Cap EVTTM

RevenueRevenue

GrowthGross

MarginEBITDA Margin

EV/ Revenue

EV/ EBITDA

EV/ Revenue

EV/ EBITDA

StockReturn

Bango BGO $127.9 $124.6 $17.6 -34.4% 19.1% -22.1% 7.1x n/a n/a n/a -7.7%BSQUARE BSQR $30.6 $11.2 $96.7 0.3% 18.2% 1.5% 0.1x 7.6x n/a n/a -9.5%Glu Mobile GLUU $151.3 $130.1 $85.1 19.3% 90.2% -10.4% 1.5x n/a 1.4x n/a -6.0%Google GOOG $292,076.9 $249,354.9 $53,499.0 33.8% 57.7% 31.4% 4.7x 14.8x 4.0x 10.9x 21.7%Gree TSE:3632 $2 070 0 $1 918 9 $1 648 9 11 5% 85 7% 40 4% 1 2x 2 9x n/a n/a -40 2%Gree TSE:3632 $2,070.0 $1,918.9 $1,648.9 11.5% 85.7% 40.4% 1.2x 2.9x n/a n/a -40.2%Facebook FB $60,157.5 $52,946.5 $5,489.0 35.9% 72.7% 23.9% 9.6x 40.4x 7.4x 14.2x -11.1%Millennial Media MM $692.8 $559.3 $194.2 68.7% 40.9% -0.9% 2.9x n/a 1.9x 27.8x -33.2%Myriad Group MYRN $154.2 $156.6 $54.5 -2.9% 22.7% -11.1% 2.9x n/a n/a n/a -3.9%NQ Mobile NQ $419.0 $304.3 $109.0 122.4% 69.9% 5.5% 2.8x 51.2x 1.5x 4.9x 34.0%OpenTable OPEN $1,457.0 $1,360.4 $167.8 15.6% 74.5% 29.2% 8.1x 27.8x 7.0x 15.4x 24.5%Opera OB:OPERA $942 3 $890 9 $231 1 35 9% 43 9% 27 2% 3 9x 14 2x n/a n/a 34 8%Opera OB:OPERA $942.3 $890.9 $231.1 35.9% 43.9% 27.2% 3.9x 14.2x n/a n/a 34.8%Qihoo 360 Technology QIHU $5,668.4 $5,367.4 $369.6 72.6% 89.4% 17.9% 14.5x 81.0x 8.1x 29.6x 55.0%Pandora Media P $3,216.4 $3,140.9 $471.9 55.2% 32.0% -8.2% 6.7x n/a 4.6x 121.3x 93.9%SmithMicro SMSI $39.5 $11.2 $44.8 -10.5% 80.6% -42.8% 0.3x n/a 0.2x n/a -34.2%Synchronoss Technologies SNCR $1,184.7 $1,127.4 $287.4 19.4% 58.5% 21.8% 3.9x 18.0x 3.1x 9.2x 42.7%Tangoe TNGO $575.7 $545.3 $165.2 41.5% 54.2% 8.7% 3.3x 38.1x 2.7x 16.4x 20.0%TeleCommunication Systems TSYS $137 1 $237 8 $482 1 10 8% 33 5% 7 9% 0 5x 6 3x 0 5x 5 0x 9 7%TeleCommunication Systems TSYS $137.1 $237.8 $482.1 10.8% 33.5% 7.9% 0.5x 6.3x 0.5x 5.0x -9.7%TeleNav TNAV $207.5 $20.0 $209.2 0.4% 68.9% 11.3% 0.1x 0.8x 0.1x 3.0x -34.5%Velti Plc VELT $127.0 $157.9 $259.6 22.8% 51.6% -1.9% 0.6x n/a 0.7x 17.2x -70.5%Yelp YELP $2,240.6 $2,146.1 $156.3 66.0% 92.9% -2.8% 13.7x n/a 8.9x 74.8x 76.5%Zynga, Inc ZNGA $2,207.0 $1,038.3 $1,223.9 0.5% 72.9% 11.7% 0.8x 7.2x 1.2x 20.9x 16.3%

M $292 076 9 $249 354 9 $53 499 0 122 4% 92 9% 40 4% 14 5x 81 0x 8 9x 121 3x 93 9%Max $292,076.9 $249,354.9 $53,499.0 122.4% 92.9% 40.4% 14.5x 81.0x 8.9x 121.3x 93.9%Median: $692.8 $559.3 $209.2 19.4% 58.5% 7.9% 2.9x 14.8x 2.3x 15.9x -3.9%Average $17,804.0 $15,311.9 $3,107.8 27.8% 58.6% 6.6% 4.2x 23.9x 3.3x 26.5x 7.6%Min $30.6 $11.2 $17.6 -34.4% 18.2% -42.8% 0.1x 0.8x 0.1x 3.0x -70.5%

• Public mobile software median and average EV/Revenue multiples as of 2Q13 were 2.9x and 4.2x, respectably

• Leading firms with strong mobile offerings (Yelp, Facebook, Pandora, Opera, OpenTable, Google) are trading notably higher, with median and  average EV/Revenue multiples of 7.4x and 7.8x, respectably

• YoY revenue growth for leading mobile software firms is in excess of 30%, and in some cases approaching 100%

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Mobile Software M&A VolumeM&A Volume by YearM&A Volume by Year• Mobile software M&A is hitting another inflection point and  M&A Volume by YearM&A Volume by Year

is on pace to reach 338 transactions in 2013, up 44% YoY

• Mobile software M&A is currently driven by:• The rapidly evolving and fragmented mobile ad‐tech l d d i b i t ti ith d

338

landscape, driven by experimentation with new ad formats and the emergence of programmatic buying

• The need for mobile ad‐tech providers to achieve scale and reach 113

224 235

and reach

• Bring Your Own Device (BYOD) and its impact on the enterprise

2010 2011 2012 2013 (F)

M&A Volume by Product Category as a % of Total Mobile Software M&AM&A Volume by Product Category as a % of Total Mobile Software M&A

• Exponential increases in mobile data consumption, driving the need for bandwidth management

• Recognition that mobile is not “just another channel” d h i li d d i l bil l i

( )

and that specialized and exceptional mobile talent is needed to fully leverage its potential and navigate its complexities

• Traditional software providers seeking solutions that31% 22%

24%

10%11% 17%

5% 9% 6%Social & Messaging

Other Apps (including mobile app developers)

Marketing & Advertising

• Traditional software providers seeking solutions that complement their existing offerings

• “Mobile first” software providers looking to extend their leadership position by expanding their software suite  24%

7%14% 8%

15% 22%18%

24%Infrastructure

Enterprise

Content & Entertainment

p p y p gwith complementary product offerings

8% 8% 8%

24%16% 18%

2011 2012 2013 YTD

Commerce & Payments

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Mobile Software M&A Exit Multiples

R fl ti th k t i t it d t ti l it lti l f bil ft i• Reflecting the market immaturity and potential, exit multiples for mobile software companies vary dramatically

• Across the spectrum of deal sizes, multiples ranged from 1.3x to 8.6x TTM revenue

• Generally speaking, transactions in excess of $50M exhibited the strongest, most consistent exit multiples, ranging from 4.7x – 6.5x TTM revenue

• Note, at the low end, TTM revenue in this segment ranges from approximately $7M ‐ $10M

• In aggregate, 2012 average and median EV/Revenue exit multiples were 4.0x vs. 2.7x, respectably

EV/Revenue Exit Multiples by Transaction SizeEV/Revenue Exit Multiples by Transaction SizeEV/Revenue Exit MultiplesEV/Revenue Exit Multiples

Median Average Median Average

2.9x2 7x

4.5x4.0x

3 5X4.7X 5.0X

5.6X

8.6X

6.4X 6.5X

2.7x

1.3X 1.6X

3.5X

1.6X

EV <= $10 EV > $10&

EV > $20&

EV > $50&

EV > $100

2011 2012

&EV <= $20

&EV <= $50

&EV <= $100

Enterprise Value Range ($ millions)

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Select Active Mobile Software Buyers (Last 2 Years)

B T t N tBuyer Targets Notes

2Q11 2Q132Q11 2Q13

• Primarily talent acquisitions of very small mobile startups, whose services were often shut down shortly after acquisition

• A handful of acquisitions, namely Summly and GhostBird, will directly help enhance existing Yahoo products

• Most notable is the recent Waze acquisition for a approximately $1B dollars.  Waze enhances Google’s industry leading mobile maps offering

• Other acquisitions focused on driving local commerce (Zagat, Zave, TxVia), productivity (QuickOffice, Sparrow, Wavii) and analytics (Behavio)

• Much like Yahoo Zynga is using acquisitions to quickly

• Most notable was the Instragram acquisition for $1B i ff i (i h t

• Much like Yahoo, Zynga is using acquisitions to quickly enhance its mobile capabilities

• OMGPOP, maker of ‘Draw Something’ was the most expensive acquisition ($183M) but was shutdown after 15 months due to massive losses

• Other acquisitions focused primarily on social gaming

~$1B, serving as an offensive (improve photo capabilities) and defensive move (remove threat of Instagram itself and others who may acquire it)

• With the acquisition of Parse, Facebook enters a new realm of helping developers monetize mobile

• Opera has used acquisitions to enter new markets as its legacy mobile browser business declines

• Advertising came with the acquisition of 4th screen• Advertising came with the acquisition of 4th screen and mobile theory, announced on the same day

• Bandwidth management with Skyfire, for a hefty exit multiple (~>30x)

• Tangoe has used acquisitions to consolidate the telecom expense management (TEM) market

• After making four acquisitions in a span of nine th di i A t 2012 T h bmonths ending in August 2012, Tangoe has been 

inactive on the M&A front, focused on integrating its products

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Top 10 Mobile Software M&A Transactions by Enterprise Value (EV)

StockBuyer TargetDate EV  EV/Rev Cash Earnout

5/12/2010 $5,423 4.5x $5,423 ‐ ‐

10/13/2009 $2,420 7.9x $2,420 ‐ ‐

2/04/2013 $1 645 6 0x $1 6452/04/2013 $1,645 6.0x $1,645 ‐ ‐

7/12/2011 $1,301 7.5x $651 $100 $550

6/14/2011 $1,150 1.5x $1,150 ‐ ‐

11/14/2011 $1,050 5.5x $1,050 ‐ ‐

4/09/2012 $1,000 ‐ $300 $700 ‐

6/11/2013 $966 $9666/11/2013 $966 ‐ $966 ‐ ‐

6/24/2008 $790 ‐ $790 ‐ ‐

12/8/2005 $705 10.7x $705

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Top 10 Mobile Software M&A Transactions by EV/Revenue Multiple

9/20/2010 $42 66.9x $0.5 $16.5 $25

StockBuyer Target EV  EV/Rev Cash EarnoutDate

2/15/2013 $147 35.0x $76 $71 ‐

10/13/2010 $70 25.0x $70 ‐ ‐10/13/2010 $70 25.0x $70

1/31/2012 $70 20.0x $70 ‐ ‐

11/09/2009 $674 15.0x ‐ $674 ‐

1/31/2011 $150 11.2x $100 ‐ $50

12/08/2005 $705 10.7x $705 ‐ ‐

$ $6/07/2012 $435 10.0x $435 ‐ ‐

3/26/2012 $144 10.0x ‐ $144 ‐

12/22/2011 $279 8.9x ‐ ‐ ‐

*Note: List excludes transactions where target revenue was withheld or less than $0 (i.e. Facebook/Instagram, Google/Waze) **Note: Akamai/Cotendo multiple is an estimate

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For Further Discussion….

To discuss the mobile ecosystem, M&A transactions and/or your mobile business, please contact me:and/or your mobile business, please contact me:

Brad WeekesBrad Weekes

P: 858.509.2800

C: 858.945.3032C: 858.945.3032

Page 12: Brief Mobile Software Market Update Ecosystem 2Q13€¦ · Brief Mobile Software Market Update & Ecosystem 2Q13 BdWkBrad Weekes ... mobile ecosystem with the iPhone, failed miserably

Brief Software Equity Group Overviewp

Page 13: Brief Mobile Software Market Update Ecosystem 2Q13€¦ · Brief Mobile Software Market Update & Ecosystem 2Q13 BdWkBrad Weekes ... mobile ecosystem with the iPhone, failed miserably

Leaders in Software & Technology Advisory Services

• Twenty­one year, exclusive focus on software advisory services to lower middle market (i.e., client revenue $5 ‐ $50M) representing companies seeking:

• Strategic exitFocus on Advice

• Growth capital• Buyout• Inorganic growth via acquisition• Fairness opinions and valuations

B d d i i Advisory• Board advisory services

• Clients span virtually every technology, product category, delivery model and vertical market

Multi­ Focus on 

Advisory Boutiques

• Global presence providing advice and guidance to more than 2,000 private and public companies throughout US, Canada, Europe, Asia‐Pacific, Africa and Israel

Industry Software

Bulge Bracket Firms IPO Boutiques

• Strong cross­functional team leveraging transaction, operating, legal and engineering experience

g

• Unparalleled software industry reputation, track record and industry research

• Highly referenceable base of past clients and buyers / investors

Multi­service 

investors

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Extensive Global Reach

Current Sell‐side Representation

• SEG currently represents software companies in the United States, Canada, France, Germany, Australia & Saudi Arabia

Recent Sell‐side Representation

Saudi Arabia

• In addition to the countries listed above, SEG has recently represented software companies in the United Kingdom, France, Netherlands, Israel, and South Africa 

SEG Research Distribution

• SEG’s Quarterly and Annual Software Industry Equity Reports and Monthly Flash Reports are distributed to an 

l f 5 bl fopt‐in list of 50,000 public software company CEOs, software entrepreneurs, private equity managing directors, VCs, high tech corporate lawyers, public accountants, etc. in 76 countries. 

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A little about me…

O 15 f ti l d i t t b kiOver 15 years of operational and investment banking experience in mobile, wireless and software sectors

Nearly 10 years of operational experience in mobile y y p pspecifically, working closely with a number of vendors in the space

P d t l d f d i i bil i iProduct lead for award winning mobile music service

Strategic consultant for mobile browser and widget runtime providerp

MBA, UCLA Anderson School of ManagementM. Eng, Electrical Engineering, UCSDB S C t E i i UCSDB.S., Computer Engineering, UCSD

Page 16: Brief Mobile Software Market Update Ecosystem 2Q13€¦ · Brief Mobile Software Market Update & Ecosystem 2Q13 BdWkBrad Weekes ... mobile ecosystem with the iPhone, failed miserably

To discuss the mobile ecosystem, M&A transactions and/or your mobile business, please contact me:and/or your mobile business, please contact me:

Brad WeekesBrad Weekes

P: 858.509.2800

C: 858.945.3032C: 858.945.3032