Teads Acquired by Altice

Altice recently purchased Teads for for around $300M. This Lift Letter is an educated guess about the dynamics that factored into this deal. 

Altice is a Dutch telecom. They own Cablevision, Bouygues Telecom, and a 70% stake in Suddenlink. This makes Altice the 5th largest US cable company, the 9th largest US TV provider, and the 2nd largest telecom in France. Their market cap is just shy of $30B.

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Teads was maybe the inventor of, and definitely the largest outstream advertising platform (excluding Facebook, etc). They were founded in 2011 and employed over 500 people when they were sold. Teads's signature product was the inRead video ad unit that auto-played with the volume off and move the content down when it expanded. Teads - at least in my mind - embodied ad tech short-termism. They invested massively in marketing, sales and publisher guarantees and never built out particularly robust technology (instead, they had Run DMC on their yacht at Cannes last year). As a result, their revenue exploded from 0 - $200M in 6 years, but they did not have a sustainable position. Almost all of their revenue was from individual insertion orders - whereas companies like ours (and others) were quickly developing a very scalable, more user-centric proposition. It was very likely that the second derivative of their revenue growth was pretty negative. From the perspective of Teads, that would make it the ideal time to sell the company. 

So why would Altice buy them? Hard to say exactly, but here are a few thoughts:

1) Revenue multiples - Altice is valued as the sum of all of its business. The vast majority of its revenue comes from other sources, and it likely has a higher average multiple than Teads. This means that adding Teads's $200M of revenue will add more than $300M to the market cap of Altice. That said, there are a lot of ways to add revenue, so this alone is not sufficient.

2) Privacy laws - the Senate just this week voted to unwind the Obama-era privacy laws. As presaged here The Changing FCC - cable companies will soon be able to leverage broadband usage data for advertising purposes. Purchasing an ad tech company is a direct way to begin applying this new-found opportunity.

3) Sales force - in addition to buying a technology vendor to begin applying the technology, Teads is a large managed-service sales company. This means that they have a significant number of sellers with direct relationships. Altice does not have this infrastructure, and a purchase with an extensive sales force allows them to quickly ramp up a hypothetical data / media play. 

4) Convergence - there is a trend towards cable-cutting, and broadband providers acting more as pure pipes than otherwise. Ending net neutrality, which seems quite likely under the Trump administration, will provide a meaningful counter-weight to this movement. Nonetheless, it is very likely that at least more TV will be watched over broadband. To this end, if a cable company has a digital ad sales business that can deliver TV advertising to its new digital viewers, they will be in a good place to monetize a shift towards this changing consumption. Comcast, for example, purchased Freewheel, a video ad server. One could view the purchase of Teads - a leading video advertising player, though not a technically sophisticated ad server - as the first step in Altice moving forward with this strategy.