To Get a Foothold in Digital

 | Jul 12, 2012 | 11:45 AM EDT  | Comments
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Big companies have a big problem with their branding these days. They want it to look the same across all their marketing efforts, but at the same time take advantage of the nuances of each venue. The hardest of all is online advertising and social media, as tastes and technology metamorphose faster than organizations can create campaigns.

That's where a new brand of digital marketing companies come in, obtaining a foothold in a world formerly dominated by Madison Avenue as they help marketing giants like Kellogg (K)and McDonald's (MCD) find the same groove online as they do on television and in print. It's Mad Men in a world of Facebook (FB), Twitter, and whatever comes barreling down the road next.

 One of more intriguing of this new breed of online specialists is Acquity Group (AQ), which is jointly based in Hong Kong and New York and just went public a couple of months ago. It is a global branding, e-commerce and digital-marketing company that helps consumer companies get the most out of their online presence.

Acquity operates through three business segments: technology and hosting, digital ad agency, and digital strategy. The first division represents 60% of total revenue and has been the company's bread and butter. The segment designs and implements online storefronts for companies, in addition to offering complete hosting solutions for client websites.

The digital ad segment operates a digital advertising agency that helps companies create one unique brand experience across multiple platforms on the Internet, mobile applications and social media. This includes online promotions, search optimization and news content feeds for online applications that are unique and differentiated from print-, radio- and television-focused strategies.

Lastly, the digital strategy group provides strategic consulting services that look to help monetize brands while increasing brand loyalty. Yes, this segment competes with traditional consulting firms, such as McKinsey and Boston Consulting Group. But Acquity's focus on digital media, and its ability to tie this into its other two divisions, has become the big differentiator.

The company has a broad and diverse range of clients across several sectors of the economy that includes blue chippers such as 3M (MMM), General Motors (GM), American Express (AXP), Motorola (MSI), McDonald's, Grainger (GWW) and more than 200 others. Retail and e-commerce clients represent about 50% of the portfolio, with the other half come primarily from the telecom, technology, financial services and healthcare sectors.

In addition to the company's three primary revenue generating segments, Acquity has forged joint ventures with a sports company formed by Chinese gymnast Li Ning, and Beijing-based CollSports, to broaden and expand its foot print in China. In both instances, Acquity will be managing websites that offer sportswear and shoe brands in China. These joint ventures currently represent a small part of the business, but the management team is confident that these investments grow, as well as lead to other partnerships down the road.

Christopher Dalton is co-founder and chief executive, having started the firm in 2001. George Lu is executive chairman after his 2020 China Holdings acquired 70% of the company in 2008. He also serves as president of the joint venture with Li Ning. Because of Chinese restrictions and tax considerations, the firm is actually domiciled in the Cayman Islands, although the operations and management team is based in Chicago.

Acquity Group (AQ) -- Daily

Acquity went public in late April, initially trading at $6 per share, where it traded for several weeks before gaining the eye of the public and rising more than 60% the last two months. Of the $33 million in capital raised from the public offering, the company has earmarked about half of that to seek out acquisitions of smaller companies that it believes can help strengthen the firm's technology platform and help it expand into new markets and geographic locations.

Citi's research team estimates that, in just the U.S., 2013 spending on e-commerce and online advertising will reach $256 billion and $43 billion respectively, creating a tremendous opportunity for Acquity. The firm already counts as clients a quarter of the top 50 e-commerce companies in the country, and as the global spend increases, so will Acquity's revenues.

At a market capitalization of $225 million, and an average trading volume fewer than 70 thousand shares daily, make no mistake that Acquity has the potential to be true small-cap growth story. That's the case so long as it can avoid the key pitfall of most marketing firms, which is inconsistency of cash flow as large clients come and go. Put this one on your radar.

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