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Microsoft-Backed AppNexus Plans 2012 IPO After Making Profit

By Sarah Frier
September 23, 2011 2:25 PM EDT

AppNexus Inc., the online advertising company backed by Microsoft Corp. (MSFT), has turned profitable and may go public late next year, founder and Chief Executive Officer Brian O’Kelley said.

The New York-based company has raised $65.5 million since it was founded in 2007, with the last round of $50 million led by Microsoft in October. AppNexus had its first profitable month in August, O’Kelley said in an interview.

“The financials, the revenue, the profit and the growth are all strong enough that we could be going public as soon as late next year,” said O’Kelley, 34. “That’s really the path.”

AppNexus provides technology, data and analytics that companies such as Microsoft and EBay Inc. use to buy and sell online display-advertising. The market for graphical display ads is set to climb 25 percent in the U.S. in 2011, and will almost double to $22 billion in 2015 from this year’s level, according New York-based EMarketer Inc., which tracks digital marketing.

“The idea of real-time bidding is going to become increasingly important,” said David Hallerman, an analyst with EMarketer in New York. “There is sheer growth of display-ad inventory as people spend more time online.”

AppNexus said its revenue has grown fourfold this year compared with 2010. The company hasn’t hired investment banks and the IPO timing depends on market conditions, O’Kelley said. Newly issued stocks during their first publicly traded year are performing the worst since July 2009, according to the Bloomberg IPO Index.

Right Media, DoubleClick

O’Kelley said he prefers an IPO to a sale as the management team wants to be in charge of building AppNexus into a global company.

“It would be hard to see a sale as the right outcome,” O’Kelley said. “I feel immense loyalty to the team we’ve built. As a public company we can control our destiny.”

Many of O’Kelley’s top employees came from companies that were bought. He and co-founder Mike Nolet worked at online advertising company Right Media Inc., and left when Yahoo! Inc. purchased it in 2007. Michael Rubenstein, now AppNexus president, was at DoubleClick Inc. when Google Inc. (GOOG) purchased it in 2008 for about $3.1 billion. AppNexus began with 20 employees and projects to be at 200 at end of this year.

For the next few months, O’Kelley will build the business through acquisitions in Europe. His management team has talked to more than 80 European companies on a trip this week, including customers and potential takeover targets, he said.

The company, which opened an office in London this summer, was drawn to Europe through partnerships with Hi-Media SA (HIM), a Paris-based electronic payments company, and Microsoft, the world’s largest software maker, O’Kelley said.

Microsoft, the fourth-biggest seller of display ads in the U.S., unveiled partnerships this month with AppNexus and MediaMath. Microsoft’s share is less than one-third of Facebook’s and about half of Google’s, according to EMarketer.

AppNexus’s investors also include Marc Andreessen, Ron Conway, First Round Capital, Venrock Associates, Kodiak Venture Partners and Khosla Ventures. Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen’s venture- capital firm, Andreessen Horowitz.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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