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Sector Report: Internet & Digital Media Q4 2019

EXECUTIVE SUMMARY
Q4 2019 Internet & Digital Media Wrap-Up

  • Internet & Digital Media continues to be a highly active category, with ~$24.3Bn in M&A volume and ~$12.7Bn in financing volume during Q4 ’19
    • 20 M&A transactions in Q4 ‘19 as varied as: PayPay / Honey (eCommerce); Platinum Equity / Cision (PR Software and Services); Thoma Bravo / Instructure (Learning Management Software)
    • 706 financings across all stages — from seed to LBO – in Q4 ’19 consistent with the similar volume in Q4 ’18
  • High-profile, billion dollar M&A deals abounded in Q4 2019, with both strategic buyers and financial sponsors driving deal activity, as they look to build out their offerings / remain competitive and deploy capital / back innovators, respectively
  • At the end of 2019, a record 199 VC-backed private companies are valued at greater than $1BN, compared to just 149 a year ago; these unicorns are comprised heavily of consumer-facing start-ups who raised billions in 2019, such as Airbnb, SoFi, and Juul Labs
  • Q4 public capital markets activity saw 20 VC-backed technology IPOs, a slight drop from the 22 that occurred in Q3. Overall, technology IPOs experienced an increase in 2019 compared to 2018
  • From a trading perspective, Marketplace companies lead the public company pack, trading at 7.0x EV / ’19E Revenue and 20.9x EV/ ’19E EBITDA on average

GLOBAL TRENDS SHAPING THE INDUSTRY

  • CONTINUED RISE OF ARTIFICIAL INTELLIGENCE
    • AI is helping companies analyze consumer behavior and search patterns and use data from social media and online platforms to help businesses understand how customers find their products and services
    • Consumer-facing companies are using AI to transform their basic communication, product recommendations, content creation, email personalization, eCommerce transactions, and more
  • IMPORTANCE OF PERSONALIZATION
    • Consumers are far more likely to engage with a brand that offers personalized experiences compared to generic ones
    • Personalization is increasingly being adopted to build loyalty and reduce churn, understand customer needs, convert visitors, and upsell / cross-sell products
  • USER-GENERATED CONTENT 2.0
    • Companies are increasingly opting for both interactive and user-generated content as a means to build stronger connections with customers
    • Seen as more engaging and trustworthy than traditional, company-created text-based content, quizzes and polls, AR advertising, testimonials, and customer videos are becoming especially popular as a means to reach younger target audiences
  • EMPHASIS ON CONVERSATIONAL MARKETING
    • With consumers demanding “immediate” responses when doing research on products and services, businesses are turning towards conversational marketing to facilitate a one-to-one, real-time connection between themselves and their customers
    • Available across multiple channels, customers are better able to engage with brands on the devices, platforms, and time schedules at their own convenience
    • Underscoring this trend, “chatbots” are becoming a must for most businesses
  • CAPITALIZING ON MICRO-MOMENTS
    • Internet & Digital Media companies are increasingly rethinking the linear marketing funnel of awareness, consideration, and decision
    • Instead, many businesses are opting to focus on building and achieving micro-moments, an intent-rich moment when a person turns to a device to act (“I want to know, go, do, or buy”)
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