Real Media Goes To Market

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Event Summary

Real Media (NASDAQ: RLMD proposed) has been in the Internet advertising business as long as anyone. But, unlike its competition it has remained a private company, with 71 percent owned by a print advertising filer, PubliGroupe, and 12 percent by a subsidiary of Advance Publications. The company has now chosen to go with an initial offering of up to $75 million of its common stock.

The proceeds of the offering are intended for general corporate purposes. These include expansion of its sales, marketing, and operating capabilities; product and technology development; and possible acquisitions of or investments in companies or assets.

Market Impact

Real Media is a respectable firm, with publishing clients ranging from Playboy to the New York Times, and advertising clients like Intel and Visa. However, for an advertising specialist it has kept an unusually low profile, while DoubleClick (NASDAQ: DCLK) and Engage (NASDAQ: ENGA) enact the Battle of the Titans in the press.

Now Real Media has opted to reach for the gold ring. And its reach is not small. Figure 1 compares Real Media's offering with the initial offerings for three Internet advertising companies that went public - DoubleClick, Engage, and NetGravity (later purchased by DoubleClick). It shows the value of the offering as projected in the initial filing document and the value the company received when it did file. These may differ because the company offers a different number of shares or achieves a different offering price from the one guessed at in the initial filing. The chart also shows the revenues for the twelve months preceding the offering.

It remains to be seen whether Real Media will make the most of its influx of cash. The company has always been somewhat conservative, and has strong ties through its major stockholder to the print industry, which itself is not the best sign of the agility needed in Internet business.

While product development and sales activities are important, and should be funded with this offering, even if the final offering is only a substantial fraction of the projected $75 million that's a lot of sales people to hire and product development to do.

Real Media's stated strategy includes, but underemphasizes, acquisition as a strategy. We believe that acquisition should be pursued aggressively with these funds. Real Media's best strategy would be to acquire a state-of-the-art personalization/targeting technology, as we believe this will be the high value in Internet advertising, both for general consumer sites and for verticals.

User Recommendations

Going public changes the nature of a company. While the current market for Internet stocks will do interesting things to the stock price, it will also focus much more scrutiny on the company. There is no reason for serious concern about the effects of this offering on customers, but it is only prudent to keep an eye on the company during the first few quarters after the offering is consummated.

Prospective customers who will be making a decision after the offering will want to see how effectively the funds are put to use. Any selection of a product or a service should take into account the vendor's ability to create and implement visionary strategy. The months after an IPO are an excellent time to see how a company performs.


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