There's a new report published by investment bank Luma Partners ominously stating that "winter is coming" to the ad tech industry.
The author -- Terry Kawaja -- says that there are simply too many ad tech companies, which were funded back in 2007 and 2008 when the space was hot, doing too many point solutions rather than offering a one-stop shop for advertisers.
And most of these company aren't making money.
Therefore, Kawaja predicts that one of two things will happen to them this year: A) They're going to run out of money; or B) They're going to sell themselves to someone else in the space that is bigger and can use their solution.
Kawaja doesn't necessarily think they'll sell for a lot of money. It all depends on the company, its revenue ramp, etc. However, a lot of the higher-quality names have been scooped up by Twitter (TWTR) -- like MoPub -- or Facebook (FB) -- like LiveRail.
There might be some that can IPO this year, but those companies will be few and far between.
Some public names that could potentially get taken out this year -- and these are my ideas, not Kawaja's -- include:
- TubeMogul (TUBE) -- Recently successful IPO but still small.
- Millennial Media (MM) -- Far away from its all-time highs in the $20s.
- Criteo (CRTO) ¿ A profitable ad tech company (!); will wonders never cease?
- AOL (AOL) ¿ Up until now, AOL has been a buyer of smaller ad tech companies; however, it may choose to sell itself to some larger player; Starboard Value LP is pushing for a merger between AOL and Yahoo! (YHOO).
Who will be the buyers in this space? Besides Yahoo! and Facebook, you should look out for Google (GOOGL) and Microsoft (MSFT) to be acquirers.
That doesn't mean that all of these ad tech companies are sure things. Look at the stock chart of Millennial in the past six months and you will understand the inherent risk in public market investing in the ad tech space.
That said, a lot of these names have been beaten up. There's not much blood left in them. However, make no mistake: This is a game of musical chairs and there will be many ad tech players who don't find someone willing to buy them.