Here’s why Outbrain is buying Video Intelligence for $55 million

Kostman explained how this would play a role in Outbrain’s attempt to cash in on advertisers shifting their budgets from linear to CTV. “We believe this will be the initial step that we make into CTV and OTT, ” he added. “They can contextually match ads in the connected TV area and we hope to leverage that.”

Outbrain’s IPO earlier this year was just one of a wave of ad tech debutants on the public markets, which also consisted of special purpose acquisition companies, with the companies now tasked with putting their newly-raised funds to work in order to demonstrate growth to Wall Street.

Speaking with Digiday prior to the announcement of today’s Outbrain deal, Dan Salmon, an equities analyst at BMO Capital Markets, explained the dynamics at play: “When companies go public, they’re not expected to just sit on it like a bank, you’re expected to do something with it.”

However, all of these public listings come at a time when the sector is faced with some existential issues as data privacy laws prompt the industry’s principal tech platforms, such as Apple and Google, to implement restrictions on ad tech’s ability to generate revenues.

In response to the decline of these foundational ad tech tools, many are turning their attention to two of the hottest trends in digital at the moment: the rise of CTV, plus the convergence of ad tech and e-commerce.

Considering the respective headwinds, and tailwinds, facing ad tech companies, the acquisition strategies of Outbrain and rival content recommendation company Taboola, which also went public via way of a SPAC earlier this year, can be considered as a case in hand.

In an earlier conversation with Digiday, Matt Prohaska, CEO of Prohaska Consulting, noted how due diligence for potential M&A activity was one of the most in-demand services his company offers this year.

“There are several drivers causing a lot of M&A with many going through the build, buy, or partner decisioning process,” he said. “Going omnichannel is one big driver with CTV really catching on and that’s something that everyone is starting to look at. The others are identity, attribution, and measurement.”

Both Outbrain and Taboola dominate the content recommendation space — prior to their respective debuts on the public market, they entertained the idea of a merger — but now they each have to distinguish from the other.

In contrast to Outbrain’s $55 million investment to bolster its video credentials, and make inroads to the CTV sector, Taboola used its first purchase as a public company to enter the e-commerce space.

After listing on the Nasdaq in June, Taboola spent $800 million on Connexity, formerly known as Shopzilla, that specializes in helping e-commerce providers directly generate sales – a service whereby sales can be directly attributed to ad placement.

During the company’s most recent quarterly earnings call, Taboola CEO Adam Singolda explained how the Connexity purchase would fit into its strategy to date.

“We expect that in coming years, one-third of the open web publisher’s revenue will be e-commerce,” he said, adding that it will also fortify their positioning as an alternative to the industry’s walled gardens.

For the three months to September 30, 2021, Outbrain reported revenues of $251 million, up 34% year-on-year while Taboola reported $339 million, also up approximately 34% year-on-year, for the same period.   

In his recent assessment of the Q3 financial results of ad tech companies on the public markets, Tom Triscari, programmatic economist at Lemonade Projects, noted how both Outbrain and Taboola’s legacy business model thrives on marketers’ need to scale their campaign buys. 

“Ad tech will never die because investors know that marketers always have to spend more money no matter what and it has to go somewhere, anywhere,” he added.