MediaValet provides digital asset management software, is growing Annual Recurring Revenues at 50%+ a year, insiders own 30% of the company, customers love the product offering and is available at 10x ARR.
Digital Asset Management Software & MVP’s History
DAMs as a concept have existed for the last 30 years and emerged to support media companies looking to store digital text and photos. Files were transferred to on-premise DAM systems, similar to storing files on local servers with VPNs. These on-premise DAMs were expensive to implement and maintain. So only very large companies even considered implementing DAM platforms, and the market stagnated for years.
In 2009, VRX Studios, the world’s leading provider of photography and content services to the global hospitality and travel industries, had 40 terabytes of digital assets under management and over 8,000 hotel customers. They desperately needed a digital asset management solution, but after a frustrating and unsuccessful year-long search, the team threw in the towel. There were no affordable DAM solutions.
VRX Studios’ founder and CEO, David McLaren, decided to tackle the challenge himself. Leveraging the power of Microsoft’s platform as a service cloud offering, Azure, he built the first 100% cloud-based, enterprise-grade, digital asset management system from scratch, with CTO Jean Lozano. David is still the CEO of MediaValet today, and Jean is the CTO. They’ve overseen the company evolve through several versions of the product and experienced all the inflection points.
Description of the product
MediaValet (MVP) sells digital asset management (DAM) software. This software allows companies to organize all digital assets (photos, videos, documents, 3D models, etc.) in one central library, scaling to millions of assets and an unlimited number of users. Users never need to worry about asset loss thanks to high security and compliance standards, since MediaValet’s software is built on Microsoft Azure (ex: MVP has contracts with several Canadian and US government agencies). MediaValet sells to creative teams responsible for content production as well as agencies that have creative departments.
MVP allows for searching assets, metadata, keywords, asset types, in an unlimited number of categories, a key differentiating point from Dropbox.
MediaValet allows sharing digital assets with unlimited users inside and outside an organization. Assets can be reformatted, resized, and edited - all on the MediaValet DAM. Files of any size can be uploaded and stored. When assets are approved, they can be published across an organization’s various digital channels in a few clicks. MediaValet also offers tracking and analysis of published asset performance, views and levels of engagement.
More on the management team
MediaValet’s chairman is Rob Chase (a key member of the leadership team at Absolute Software), who grew Absolute’s ARRs from 4M$ to 100M$. Most operating teams of the company reported to him at Absolute at various times throughout the evolution. Absolute was also a B2B business. Rob joined MediaValet in 2015 to build something similar & helped reinvigorate the product by building the 7th version of the product. Rob owns just shy of 10% of the equity, and total insider ownership is 32%. The former Chief of CMO Research at Gartner, Jake Sorofman, also serves on MediaValet’s Board of Directors.
Today, MediaValet is at the forefront of the cloud-based digital asset management industry and provides companies of all sizes and industries an enterprise-class DAM solution that is accessible from any browser and is infinitely scalable. They have over 260 clients, including Universal Studios, Verizon, etc.
Gartner positions MediaValet as the highest-rated cloud DAM for the mid-enterprise segment of the market.
And customers love the product. These are some customer reviews online, from non Media-Valet sources (featuredcustomers.com & capterra.com) :
Some snippets from customer case studies as well below. The company mentions its focus on the end-user and Net Promoter Scores on their website.
To sum up value-add to customers, marketing and communications teams appreciate MediaValet since they can store massive amounts of digital assets in one central and secure location, manage them daily across their employee base, customers, partners, vendors and media outlets. MVP also helps improve efficiency of companies by allowing worldwide access.
State of the market
The digital asset management industry growing at a 17% CAGR, and will reach a 7.5B$ size by 2025. These are sell-side estimates and are predicated on a new wave of enterprises embracing modern DAM solutions to drive greater workflow collaboration and automation within creative and marketing operations. We are in the early innings of increased DAM adoption.
The growth in the TAM is partly explained by the value-add to customers. DAM software causes 85% reduction in the cost of digital media, 25% increase in revenue and 20% reduction in risk of misuse, according to the International Data Corporation. MediaValet customers themselves report payback periods of an average of 9 months.
There is also less customer education required than before, thanks to the Covid pandemic, and the market is moving quickly towards adoption. For example, existing customers saw a 25% increase in usage during the past few months. MediaValet has also been agile in helping new customers quickly, such as by setting up a webinar which teaches users to get the system up and running in 48 hours.
The market is 80% greenfield, meaning that MediaValet is not competing with traditional large switching costs prevalent in software. But interestingly, MVP is even winning deals in the non-greenfield market. For example, in September, they signed an entertainment streaming company which used to use WebDam (owned by Bynder), but it isn’t supported anymore so the DAM is being terminated. Former customers are thus replacing WebDam with MediaValet, instead of doing the easier thing and using Bynder’s DAM. Opportunities are coming along MVP’s way even in the non-greenfield market, mostly from on-premise systems.
Sales cycle also got longer in the market due to Covid, but longer term, the world is getting more digital, and will continue to do so post-Covid. MediaValet is helping fulfill the dream of tech, to be untethered from the office and being able to work from anywhere.
Economics of the business
Before, for every 0.82$ of sales spent, MediaValet would immediately get back 1$ of revenue in 1 year. Now, due to longer sales cycles, it’s 1.25$ of sales spend for 1$ of revenue (still better than most of SaaS, which is 2-3$ of sales spend for 1$ of revenue). So MediaValet had an excellent CAC payback even during the darkest days of Covid. 90% of revenues are recurring.
In 2019, the LTV/CAC ratio was 8x, the best in the industry (a 4x LTV/CAC is considered stellar in the market, for reference). In 2020, MediaValet increased investment in operations in terms of sales staff and R&D, but CAC/LTV has remained high, at 5-6x LTV/CAC. Net dollar retention is over 103%, as users are increasing spend.
For example, one of Dupont’s subsidiaries was using MVP’s DAM, which allowed MediaValet to sell to 5 additional Dupont subsidiaries. Selling to additional departments/subsidiaries at companies is a major growth avenue, as MediaValet’s usage is extended across different subsidiaries and departments of one company.
Integrations and partnerships
MediaValet has integrations with Microsoft, Slack, Salesforce, Autodesk, Adobe, etc. Their integration strategy allows them to be integrated with all enterprise workflows. The first goal of integration is to maximize adoption for MediaValet. For example, when on Powerpoint, a user could use the DAM functionality, so the product is seamlessly integrated, and all these integrations with applications customers use allows the DAM to become embedded in the fabric of a company. MediaValet has the advantage of being platform agnostic, since they’ve built out an entire suite of integrations to help their users’ integrations be stored in a single location.
These various integrations have made MediaValet the Switzerland of digital assets since they are a product integrated with all major platforms.
The second goal of the partnerships is to get distribution and deals through these partners – it’s a go-to market opportunity. 15% of sales came from partners during Q3-2020, and trailing 12 months average was 9%, so this is a step in the right direction, as strategic partnerships are improving in quality and quantity. The aim is to get 20-25% of sales from partners eventually. Competitors simply do not have the same level of integrations and strategic partnerships. For example, MediaValet is the only DAM platform built on Microsoft’s Azure platform. This allows MVP to get Microsoft applications into the DAM, and empowers instant scalability.
To come back to the guided AI functionality, it’s an extra expense and so is ‘CreativeSPACES’, built specifically for creative teams to access global cloud assets at local speeds, as well as syncing their work-in-progress. Both these opportunities provide a way to increase ARPU by upselling these new functionalities to existing customers.
Guided AI allows for the automatic tagging of assets into different categories according to certain confidence levels. For example, when Verizon sells a variety of brands and generations of mobile phones, they train an AI model to differentiate between the various brands and generations of phones, so they can then search the MediaValet DAM using terms like “iPhone 8” and “Samsung Galaxy S8”.
Note on increased usage: MediaValet allows for tagging of digital assets into several categories (named metadata). This metadata makes searching across hundreds of thousands of digital assets a lot quicker and Increases usage within companies. Metadata creates enormous switching costs for enterprises using MediaValet because metadata are not transferred to another DAM if ever a customer switches, but they are a key functionalities making users’ lives easier.
This is an example of the guided AI functionality classifying a picture into several different tags, which is important to know for different business needs.
Like most enterprise software, MediaValet has enormous switching costs since there are network effects to using software at the enterprise level. When entire teams and departments are using a specific software and collaborating on it, ripping out the software is often too painful and switching costs are thus far greater than in B2C software. Thankfully, MediaValet is competing in a mostly greenfield market, and so competes less with large switching costs. MediaValet also captures customer data and metadata as well as multiple third-party integrations, strengthening the staying power of the software. For example, metadata does not transfer over to other software if ever a customer decides to switch providers. And indeed, MediaValet has only ever churned one enterprise customer ever.
Some competitors of MVP include Bynder, WebDam and Wyden, but they are all less enterprise-oriented. They are also smaller, and are a combination of features, not one seamless offering. MVP offers a lot more customization as well. For example, if several customers request a certain feature from MVP, within 1-2 quarters, it can be added.
Economically, it makes sense to do so, since MediaValet is mostly going after larger, more complex, customers. The companies going after smaller clients can’t be as flexible because it wouldn’t be economically feasible to give them the same tailored attention.
MediaValet’s most legitimate foe is Adobe however, since they are also focused on enterprise customers. But Adobe’s system is an old DAM that isn’t fully on the cloud. Implementation is expensive and user experience isn’t the smoothest, making it more difficult for customers to implement and use. Besides, Adobe doesn’t have a direct salesforce for its DAM product.
Nuance: if a customer uses the Adobe suite and no other platform, they will go with Adobe’s DAM. But most customers do not use Adobe exclusively (ex: they use some Sharepoint, local servers, Dropbox, some Adobe). When MediaValet goes to market, they find these customers who use multiple platforms, and sell them their DAM. This is where MediaValet’s Switzerland role in the digital assets space becomes a competitive advantage. For example, MediaValet won Universal Studios as a client, over Adobe.
In sum, there are two ways to get to market: integrations and direct sales.
Previous capital raises
MediaValet completed a few capital raises in the past few years, including one in October 2020 of 11.5M$. However, they have ample capital now, roughly 15M$ of cash, which should be enough for 3 years at least. Every dollar from equity raises was reinvested in the product anyways, no management received proceeds, and if anything, they invested themselves. I saw MediaValet as a publicly traded venture capital stage company until this last raise.
The constraint is now making sure MediaValet can grab the growth opportunity the market is offering. The constraint includes attracting talent so R&D staff can double. A lot of key hires can be completed within the next few months though. The economics (see above) also convinced me that at maturity, MediaValet will have healthy margins - they already have 85% gross margins.
Big picture, we’re paying 10x ARR for a 50% revenue grower. Since refocusing the business on the DAM market in 2014, MVP’s ARR have grown from 400k to 7.9M$ (70% CAGR), with growth accelerating following a major software release in 2018. Headwinds impacted ARR net additions in H1/20, which are now fading. Covid actually helps them, as companies are realizing the value-add of a DAM and going digital, adapting for remote employees.
Below are the annual recurring revenues. As of Sept 30, 2020, they were already had 7.94M$ in ARR, more than FY2019 which included signing Verizon. In Q4-2020, they’ve already announced 500k$ in new ARRs via press releases, and they don’t release each new contract so there's more ARR added. I assumed 1M$ in new ARR for Q4. Their sales growth is strongly correlated with employee growth, and each salesperson brings in 750k in sales. They hired 2 more recently, who should be adding 4.5M$ in sales in 2021. I then assumed an extra 2 salespeople will be hired in 2022, bringing total ARR then to 21M$.
These estimates should be conservative, since it assumes they don’t hire too many new salespeople, which they probably will. And it assumes no new leads/ARR from partners like Microsoft and other consulting firms, who currently make up 15% of new sales.
At 10x ARR, even with a 2022 exit (about 2 years), the market could already be at 210M$ (45% IRR). That's assuming no multiple expansion, no large salesforce increase and no new leads/ARRs from partners.
I like the setup of the stock. It’s a microcap with little market awareness of the company and the float is extremely tight. Insiders control 32% of shares and institutional investors own 41% (including Fidelity, which owns 7%). This means the float (27%) is small, and the slightest of positive news would propel the stock upwards (current market cap is 100M$).
An additional price discovery opportunity that MediaValet is considering is the eventual uplisting to the Toronto Stock Exchange from the Venture Exchange.
MediaValet is addressing a new market, which has several gold mines of opportunities, as shown by the exceptional economics of the business. The pandemic has also provided tailwinds by increasing the need for remote access within companies, as well as increased the amount of digital assets under management. MVP is unseating incumbents who don’t have the same relentless focus on the consumer, and many don’t offer a cloud solution yet. MVP also cross-sells products with existing customers, thus increasing ARPU. MediaValet’s moat is that it is painful for customers to switch, since they capture customer data and metadata, have multiple third-party integrations, and their software is often extended across multiple departments.