About 11 years after it was founded, Tel Aviv-based mobile adtech firm, ironSource, began trading on the NYSE at an $11.1 billion valuation after merging with a special purpose acquisition company (SPAC), reported Reuters.
Since that June 29, merger its shares have fallen 22% from their high, according to CNBC. Does that drop make the shares a better buy?
My July 1 interview with CEO Tomer Bar-Zeev suggests that the company has a bright future ahead. Yet its guidance suggests that growth may be slowing down.
IronSource’s SPAC Merger
IronSource raised $2.5 billion — including a $1.3 billion private investment in public equity (PIPE) — when it merged June 29 with Thoma Bravo Advantage, a SPAC backed by U.S. private equity firm Thoma Bravo — which has invested in over 300 software companies, reported Reuters.
IronSource is an Israel-based software publisher focused on “the application economy.” According to CNBC, IronSource offers three services:
- Ad Network that helps app developers connect with advertisers and serve ads on their apps;
- Mediation Platform that helps app developers to manage their direct relationships with ad providers that serve ads on their apps; and
- Marketing Platform that enables advertisers to create and optimize advertising campaigns.
IronSource will use the funds to make acquisitions that expand its app developer platform. Bar-Zeev told Reuters, "The reason we're doing it now, adding a lot of cash to the balance sheet and having this currency, partnering with Thoma Bravo, is to make sure we have all the ammunition, we need to be the market consolidator."
In my opinion, stocks move based on how well they perform each quarter compared to what Wall Street expects. More specifically, if the company beats quarterly revenue and earnings growth expectations and raises its forecast for the current quarter and the rest of the year, its shares will rise. Otherwise, the shares will remain unchanged or drop.
IronSource forecasts slower growth for the fiscal year. How so? It reported 96% revenue growth to about $120 million in the first quarter of 2021 and forecasts 24.4% top-line growth for all of 2021 — from $390 in 2020 to an estimated $485 million this year, according to Reuters.
IronSource’s Acquisitive Road To Success
Until late in 2020, ironSource’s cash cow was a participant in Israel's notorious “Download Valley,” according to Globes.
That cash cow was called installCore — a set of “installation and content distribution program, which enabled users to install programs such as antivirus, Zoom, a music player or Chrome on their personal computers,” noted Globes.
IronSource made money from installCore through “additional programs that ‘rode’ on the installation, offering the user more and more programs.” For example, noted Globes, a user who installed Zoom would receive a suggestion to change the default search engine on their browser. If the user followed the suggestion, the provider — Google, Yahoo! or Microsoft — would pay ironSource a commission.
Many users downloaded programs that they did not need because they “didn't bother to read the small print or didn’t understand what exactly they were agreeing to. Companies that used to occupy the Israeli Download Valley with similar developments: Babylon, Conduit, WebPick and Superfish, either changed their ways or closed down,” according to Globes.
IronSource has acquired its way to reducing the amount of revenue it receives from this installation engine.
Here’s how: two years after it was founded, in 2012, Bar-Zeev’s company — then known as Foxtab — was generating between $50 million and $70 million in cash from about 80 million downloads, Globes wrote.
That year, Foxtab combined with Volonet, a company backed by Shlomo Dovrat of venture capital firm Carmel Ventures — now named Viola Ventures. The merged company — dubbed ironSource — has made at least a dozen acquisitions. These included software companies that gave it end-to-end control of game monetization.
More specifically, according to Globes, the acquisitions offered services that
- Present advertising while downloading software,
- Link to other computers remotely,
- Distribute browser add-ons for embedding emoticons in chat. and
- Compare consumer product prices.
IronSource later acquired a game studio.
Sadly, ironSource’s services are not universally loved by consumers. The Better Business Bureau (BBB) is tracking 45 complaints related to ironSource’s Supersonic — a platform acquired in 2015 that enables app developers to distribute an app, analyze its distribution, and generate additional revenue from advertising.
Consumers have had trouble receiving rewards. “Supersonic came to BBB’s attention in June, 2015. A review of the company’s complaints done in January 2017 indicate issues with consumers receiving rewards. Complaints state that when requested proof is submitted and rewards are still not provided,” noted BBB.
I requested comment from ironSource and will update this post if I receive a response.
IronSource’s Corporate Culture
Bar-Zeev is excited about ironSource SPAC merger. “Listing on the NYSE is wow, overwhelming! I am still digesting what is happening.”
IronSource’s time horizon has broadened. “11 years ago all you wanted to do is survive the day. You dream about building a company [that can teach this point]. It wasn’t until about six or seven months ago after rejecting an offer to sell the company that we realized we could build a big company,” he said.
IronSource’s IPO is the achievement of a “life mission” that flows from the high “group intelligence” of its team. Bar-Zeev said, “We have eight cofounders and a conviction in the quality of the team. We have the emotional quotient (EQ) required to support growth.”
IronSource’s team is greater than the sum of its individuals. “The team is A+ world class. It is balanced so that the personalities create a group intelligence that is higher than that of its individuals. We are not wasting time trying to change the team. We accept multiple views. We really have feeling for each other and care about what is best for the company,” he said.
Dovrat has been a critical source of inspiration for Bar-Zeev. “Shlomo has been amazing. He has become a very close friend and our number one supporter. What makes him different from other venture capitalists is that he thinks big. In 2012. he thought ironSource could be a big company,” Bar-Zeev said.
Dovrat was impressed with Bar-Zeev as well. As Dovrat told me in a June 28 interview, “I was impressed with his abilities in both technology and business — resulting in quick and effective decisions. If Tomer missed a goal — due, for example, to a problem with technology, the product, or the business — he would build and deliver a solution within a week."
He also admired how Bar-Zeev was able to outthink the competition. "The competition was Facebook and Google. Tomer thought he could improve on what the competition was doing. IronSource's platform helps game developers monetize their content. IronSource uses value-based pricing. It charges a percentage of the revenues ironSource’s services add. This paid off as existing customers bought more from the company — ironSource had 149% net retention before the IPO," Dovrat told me.
Should You Buy The Stock?
If IronSource can exceed its revenue growth forecasts and raise its guidance, its shares should be worth more. Investors should monitor whether the company can sell more to existing customers. That seems to be happening since Dovrat told me it is achieving a 176% net retention rate from current customers since the IPO.
If it can make more acquisitions and integrate them into its culture of what Bar-Zeev calls “meaningful fun,” ironSource may add new customers, sell more services to its existing ones, and grow faster than its guidance to investors.
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