Focus Media Holdings' IPO was priced to sell at $17 per share when it went on the block July 13. But the company, which operates three-quarters of the LCD displays in commercial buildings in 13 Chinese cities, found demand greater than expected when the cash started flowing in. By day's end, the stock had seen an increase of almost 19 percent, and the company had added $170 million to its coffers.
"This is a major coup for the digital signage industry, and it is a very big deal," said Bill Collins, principal of Cincinnati, Ohio-based WBC Narrowcasting Group. "For perhaps the first time, a digital signage company has had one-on-one meetings with dozens of institutional investors prior to launching an IPO in order to educate them about their company and the market generally."
Brian Nutt, president and owner of Louisville, Ky.-based Captive Indoor Media, agreed.
"This is surely an endorsement of digital signage and its relation to how companies of all size approach their advertising initiatives," he said. "I for one am not surprised that the investment banks are recognizing the potential our industry holds."
Focus derives most of its income from selling LCD ad space, and reported revenue of $9.6 million in the first quarter, with profits of $2.6 million. Those amounts were more than double their respective counterparts from 1Q 2004, according to China Daily. The company has approximately 680 customers, 180 of which were recently landed.
"Although Focus Media is a Chinese company, I think it's important to remember that most of the new investors in Focus Media come from North America, with a significant number of European and Asian investors thrown in the mix," Collins said. And that bodes well for an industry that appears to be on the verge of a major growth surge.
The writing
that is, pixels on the wall
Collins said the digital signage industry is facing its "build-out" stage, in which large sums of money are needed to build the infrastructure that will drive future profits. The attention that Focus Media's IPO has brought to the business will be a big help.
Nutt said that the build-out will likely take a few years.
"I think it is easy for investors and consumers to see the utility of our industry but cannot yet grasp the true potential because it is not yet densely implemented," he said. "That will take time."
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Collins agreed that the next two to three years will be pivotal, with change coming fast and furious. He points to a number of prime movers: declining hardware costs, the rise in awareness of advertisers to out-of-home ad networks, and the simultaneous dissatisfaction many of those companies feel with conventional ad models.
And don't forget about the kids. After all, as the song tells us, they are our future.
"Young consumers are growing up with the Internet and mobile telephones that communicate valuable information to them via full-color screens," he said. "When these young people go into public space, they expect to receive information that is relevant to them via color screens."
Nutt said he sees parallels between this business and the cable TV business of the '80s and '90s, just before fee-based programming and major consolidation took hold.
"It will be interesting to see who the players are in two years," he said.
