DIGITAL MARKETING HUB v2.0 - AdExchanger

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Digital Marketing Hub <strong>v2.0</strong> BMO Capital Markets Other Covered Public Company Profiles LinkedIn (LNKD, MARKET PERFORM, $115 target) We rate LNKD shares MARKET PERFORM; our view is balanced by the company’s user growth story and multiple revenue lines, balanced by full valuation. LinkedIn offers a “pure-play” on secular social trends – including paid advertising/media – and a compelling user growth story. By establishing itself as the leading “social professional network,” LinkedIn offers a play on IP marketing that is ripe for B2B marketers, as well as high-end B2C (e.g., certain financial services, luxury, travel & leisure, and high-end technology). LinkedIn’s user base is particularly attractive to advertisers as 33% of its users have a median household income of $100K+. The company’s CEO has noted publicly that he views Marketing Solutions' potential addressable market as $70 billion globally, or essentially the global market for digital advertising and marketing services. The immediately addressable market is focused on the roughly $25 billion of business-to-business advertising; however, LinkedIn’s traction with high-end consumer brands will help expand share. We believe the company’s paid advertising products are still in their infancy, with relatively straightforward text and display ads encompassing most of the Marketing Solutions segment’s revenue at the moment; in fact, we expect Marketing Solutions to be the starting point as LinkedIn looks to begin monetizing its growing mobile engagement. Moreover, opportunities around online video advertising remain largely untapped. Furthermore, with the rollout of brand communities, like the recently launched “Connect: Professional Women's Network, Powered by Citi” – which features discussions and other content geared around female financial professionals – brands are increasingly leveraging earned media opportunities on LinkedIn. Sapient (SAPE, OUTPERFORM, $15 target) We rate SAPE shares OUTPERFORM for the unique positioning of its digital agency SapientNitro and the compliance-oriented nature of its IT services business (i.e. its largest clients are global financial services companies facing a host of new compliance that mandates IT system upgrades). In particular, the SapientNitro agency is building momentum by pushing the envelope in integrating marketing with commerce. Of note is the agency’s work with Coca Cola on kiosk/vending machine redevelopment and use of the iPad in-store with Target. SapientNitro's acquisition of CLANMO should capitalize on mobile marketing and mobile commerce convergence. The company reports three segments, SapientNitro (integrated marketing technology and agency solutions), Sapient Global Markets (capital and commodity markets support) and Sapient Government Services (consulting, technology and marketing services for the US government). ValueClick (VCLK, MARKET PERFORM, $18 target) We rate VCLK shares MARKET PERFORM); our view is balanced by revenue trends that slowed in 1Q12 (and lower than expected 2Q guidance) offset by moderate valuation (i.e. less than 15x 2013 P/E). ValueClick is a diversified interactive marketing services company with a legacy is in performance based online advertising, which forms the basis for the Media segment. The company’s other segments include Affiliate Marketing (under the Commission Junction brand), Owned & Operated (including the Smarter.com and CouponMountain.com brands), and Technology (including the MediaPlex ad serving/analytics platform). The acquisition of Greystripe gives ValueClick access to both mobile web and app opportunities and the more recent acquisition of Dotomi added retargeting capabilities. A member of BMO Financial Group 84 June 7, 2012
Digital Marketing Hub <strong>v2.0</strong> BMO Capital Markets Acxiom (ACXM, OUTPERFORM, $17 target) We rate ACXM shares OUTPERFORM for the opportunity provided by the repositioning of its core marketing and data services (i.e. higher margins long-term) and return of capital to shareholders via share buyback. Under the guidance of a new management team, Acxiom has begun repositioning its core marketing offering as a "data management platform". The company has sold its consumer background screening business and is exploring strategic options for its IT management business in order to tighten its focus on marketing services. Relevant products include MarketEdge-X (marketing database solution), InfoBase-X (data and analytics), Relevance-X (performance and behavioral targeted advertising), ConnectionPoint- X (real-time predictive offers), PersonicX (consumer segmentation), MarketScape-X (segmentation analysis), BI Platform-X (information processing and analysis) and Kefta (personalization tool). Valassis (VCI, OUTPERFORM, $23 target) We rate VCI shares OUTPERFORM for the company's sustainable Shared Mail business (and its 40-50% incremental EBITDA margins) and robust share buyback. Valassis is a direct marketing company that delivers coupons to consumers through shared mail, free standing inserts (FSI), preprinted/solo inserts, and digital channels as well. Its digital coupons reached consumers through RedPlum Display Advertising (which includes redplum.com and a premium ad network), RedPlum Email Marketing and RedPlum Digital Coupon Distribution, including Offer-to-Card/ID, which allows consumers to view and select coupons and save it directly to the loyalty cards for grocery and drug chains primarily. Constant Contact (CTCT, MARKET PERFORM, $24 target) We rate CTCT shares MARKET PERFORM and like Constant Contact's evolution beyond its original email services to become a broader engagement marketing platform (essentially a "digital marketing hub" for small business), but remain on the sidelines until net subscriber gains can show signs of reaccelerating; this is proving a challenge as US small businesses continue to feel the effect of challenged economy and international efforts are still nascent. Constant Contact is software-as-a-service provider focused on helping small and medium-sized businesses market their products and services through email, events, online surveys, social media, daily deals and loyalty programs. The company's target segment is companies or organizations with 20 or fewer employees. Constant Contact’s social marketing tools include email marketing, event marketing, online surveys, Social Campaigns (social media/Facebook marketing tool), NutshellMail (social media monitoring), SaveLocal (local daily deals program), and Social Media Quickstarter (social media starter kit). A member of BMO Financial Group 85 June 7, 2012
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