#49.1: MediaMath Valuation Model
Model for Paid Subscribers
Reading Time: 2 minutes
Last week we shared our thoughts called MediaMath The Aftermath to break down how Infillion’s $62 million investment ($22 million asset purchase + $40 million in working capital investment) might pan out.
For paid subscribers: If you’re interested in checking out our model and calculations, check the Excel download below the paywall.
What will it take for Infillion to get a return on MediaMath?
First and foremost, getting to $1 billion in gross ad spend as soon as possible should be priority number one. Why is Infillion’s DSP better than the next best alternative? For instance. if you’re in a client RFP pitch and it comes down to you and the other guy, why does the client pick you as the winning DSP? Is it price? Or is it because you have the “X” factor or both?
In the DSP business, it is absolutely critical to target ~15% operating margins as a bare minimum. Anything lower than 15% and you’ll struggle to create free cash flows.
Getting hyper-capital efficiency is incredibly meaningful toward generating free cash flow. One way to get there is by breaking sequential liability and by building a business that collects receivables earlier than usual and pays SSP payables later (or just in time).
Four Quick Cases
Since Infillion’s strategy looks like a hybrid approach — part private equity ( $22 million asset purchase) and part venture capital ($40 million working capital investment) — we think it’s reasonable to assume management would be happy to get a 5x return about five years down the line ($310 million target value = $62 million x 5x).
Case 1 gets Infillion almost halfway there.
Case 2 is better, but achieving 20% operating margins is not easy unless AI and other labor productivity tools are truly in play.
Case 3 generates a really good return because higher capital efficiency means less net investment (changes in working capital and capex) is taken from free cash flow.
Case 4 is a really great business with maxed-out operating margins at 20% and max capital efficiency at $3.00 in net revenue for every dollar in invested capital.
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