AdTech & Marketing Tech: 2023 Multiples

Sometimes called AdTech, MarTech or simply Marketing Tech, this industry was born almost simultaneously with the internet as we know it.

AdTech is an umbrella term to describe companies producing, distributing and using tools and software that helps advertisers reach audiences, deliver digital campaigns and measure their outcomes. This may sound generic, and it is.

Traditional advertising used to involve companies purchasing advertising space from other businesses—mostly in the media industry—and populating them with content supplied by advertising agency. When the majority of ad spaces moved online, the large amounts of accessible user data allowed advertisers to target their content with unprecedented precision. The need to collect, process, measure and act on this data prompted the development of AdTech.

According to Amazon—a global AdTech leader, among other things—AdTech and Marketing Tech allow for better allocated ad spend, operational efficiency of campaigns and deep insights across the marketing funnel.

According to Allied Market Research, The Global Ad Tech Market was valued at $748.2 billion in 2021 and is projected to reach $2.9 trillion by 2031.

While the AdTech market has been growing for nearly a decade, making or breaking industry giants like Google and Facebook, it has been impacted by an array of market dynamics such as governments trying to break up some of its largest players, GDPR, the COVID-19 pandemic, as well as an increased sensibilisation towards disclosing user data to third parties.

The Advertising and Marketing Technology ETF (MRAD), managed by Mirae Asset Group, seeks to invest in “companies that we believe are positioned to benefit from the disruption underway in the advertising and marketing industries.” These include programmatic, targeted, and data-driven advertising companies, as well as companies that leverage technology to partly or fully automate or marketing processes such as asset creation and targeting.

The 31 companies in the fund are all listed on public stock exchanges, and so their financial metrics may differ from younger start-ups introducing innovative technologies, typically considered a high-risk-high-reward investment. Almost 95% of these companies recorded positive revenues throughout the past 2 years, and over 65% had a positive EBITDA.

AdTech & Marketing Tech Valuation Multiples

Median EV/Revenue multiple for AdTech companies were boosted as a result of the COVID-19 pandemic. With physical advertisement spaces getting hardly any impressions, median multiples jumped from 3.5x in Q1 2020 to 8.4x in Q1 2021, at their peak.

What seemed like a slight correction in the second half of 2021, ended up being a dramatic fall throughout 2022, with the median EV/Revenue multiple for AdTech companies falling to 1.9x in Q4 2022. This is just over half of pre-pandemic levels.

Source: YCharts

The decline in Revenue multiples starting in the second half of 2021 partly started due to policy changes both from a legislative side and from within the supply chain. This included stricter user data-protection policies including restricting cookies and tracking across websites.

Cookies are among the main tools used by AdTech companies for tracking user data, and the fact that Apple made a bold move against them strongly signalled that reliance on third-party data was a major weakness for companies in the space, affecting earnings and therefore multiples.

When it comes to distribution, there was a very high variance among companies in the cohort up until the end of 2021, but 2022 brought the data points much closer together on the lower end of the spectrum, meaning underlining that external forces are hindering the value of businesses operating in the AdTech space.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.

EBITDA multiples followed a similar trend to their Revenue counterparts, jimping from 30x in Q1 2020 to 28.4x in Q2 2021, before starting a steep, year-long decline. In Q4 2022, the median EV/EBITDA multiple for AdTech companies was 11.6x.

Source: YCharts

Profit is not a given in this tech-heavy industry, with margins usually rather low. However, the pandemic has shown that those companies that are profitable deserve to be valued at a premium, with the bottom 25% of the cohort being able to maintain minimum EV/EBITDA multiples much higher than those recorded in the first quarter of 2021.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.