Sizmek, US-based ad tech company, has filed for voluntary bankruptcy in an effort to tame its “over-leveraged balance sheet”, a situation that reflects the increasingly tough market in which ad tech firms compete.
Towards the end of March, the independent company issued a press release, announcing that it had “initiated voluntary proceedings under Chapter 11 of the US Bankruptcy Code to preserve value and seek access to capital while the Company continues to review strategic alternatives”.
Its bankruptcy filing show it owes money to between 1,000 and 5,000 creditors, including $4.5 million to Google. The company is continuing to trade while seeking protection from the courts.
The company’s difficulties highlight deeper vulnerabilities in the ad tech ecosystem and how it is structured, according to ad tech sources. News of layoffs at other vendors such as mobile ad network Verve, and demand-side platform DataXu in the last few weeks, have compounded that fear. The moves have prompted further industry talk around who in the industry has potential unsustainable debt loads and whether ad tech investors are becoming more jittery.
Some, like Zach Edwards, founder of analytics firm Victory Medium, are even drawing analogies to the collapse of the mortgage industry during the financial crisis. Many publishers are resigned to the fact they will likely be left holding the bag with bad debts, albeit not at a scale that could severely damage them, should Sizmek default.
The filing comes as significant questions hover over the entire sector, with potential changes to Google Chrome, which has a 62.5% market share among browsers, and Marketing Platform. These, which Adweek reported have been under discussion, could see targeting restrictions at the browser-level, and could have colossal impact on the ad tech sector.
In an October 2018 report on global ad tech players from the research firm Gartner, Sizmek was considered a visionary: high on vision but low on execution. It noted that despite consistently good performance on conversion-based campaigns, an efficient workflow, and an ability to serve small and midsize clients, there were problems. These included issues around product reliability and post-launch technical support.
Sizmek’s crisis highlights a deeper issue: the cost pressures of ad tech vendor pricing structures. For instance, due to the cashflow set up and lengthy payment terms between advertiser clients and their agencies, SSPs at the other end of the chain can end up acting as the float for the agency holding groups and the advertisers, according to a former SSP executive.
Typically, clients pay agencies on average, 90 days after a project’s delivery. Agencies then pay the trading desks, which pay the DSPs. Usually, the SSP has invoiced the DSP with much shorter payment terms — typically 30 days, according to sources. Those SSPs that can offer publishers the shortest payment terms will likely end up with their business.
But this means an SSP can carry in the high tens of millions of dollars in working capital requirements every month. Not cheap. A go-to way to shoulder that additional cost is to take out short-term loans with banks to cover the cost. Those loans wouldn’t extend to when a DSP defaults, however.
Sourced from; WARC, Adexchanger, Digiday