TechTarget Sees Small YoY Growth, But Says Macro Remains a Problem

By Jacob Cohen Donnelly • August 8, 2024

TechTarget, a b2b media company, announced its financial results on August 8th. It plays an interesting role in analysis as one of the few pure-play b2b marketing services companies, serving as a subtle barometer for how other b2b media companies dependent on software advertising.

  • Revenue: $58.9 million, up only 1% from last year, but up 14% sequentially
  • Net income: $1.3 million, down 51%

Revenue being up year-over-year had management pleased, but they cautioned that there remained a lot of headwinds. In the earnings release, management said:

As we noted in our first quarter Shareholder Letter, customers continue to be cautious about their budgets amidst ongoing pressure and uncertainty surrounding high interest rates, inflation, international tensions and the upcoming Presidential election. This trend continued in the second quarter as technology vendors implemented additional discretionary expense reductions, layoffs and other cost cutting measures. In our experience, investors reward technology companies for revenue growth in low interest rate environments, which in turn incentivizes technology vendors to invest in sales and marketing. As such, we believe these headwinds will continue to put pressure on technology vendors and their customers until monetary policy actions are taken to improve the interest rate environment and lower the cost of capital.

There are signs of improvement from its customers. TechTarget uses a metric called DSO, which means days sales outstanding, to calculate how long it takes people to pay for services provided:

We also continued to see consistent cash collection from our customers with our DSO improving to 66 days from 79 days at June 30, 2024 and 2023, respectively, and our reserve for doubtful accounts decreasing by $1.5 million from year end 2023.

This matters because slow bill payments are a sign of advertiser problems. Advertisers paying on time indicates healthier partners than TechTarget might have had in the past. It’s one metric, but ability to pay on time is a good one to track for financial health of advertisers.

There are other revenue metrics worth looking at.

First is customer size. Although revenue increased for the quarter, it’s mainly due to its top ten customers, referred to as “legacy global customers.” These customers spent 7% more than last year. If you remove them, all other customers spent 1% less. Concentration carries risk because if one partner leaves, TechTarget’s revenue will take a hit.

Secondly, North America continues to drive TechTarget’s growth, with revenue up by 6%, while its international business dropped by 10%. This could indicate the stability of North American markets or that many legacy global customers are based there.

Third is contract length. A contract with a term over 270 days is a longer-term contract. In a strong economy, companies are more likely to commit to longer-term deals, while they seek maximum flexibility during tough times. As shown in the graphic, short-term contracts have become a bigger part of the business in the last couple of years.

Looking forward to Q3, TechTarget expects revenue of $57-59 million with a net loss of $1.2-1.9 million.

Update on TechTarget/Informa Markets Deal

On January 10th, TechTarget and Informa announced a merger where Informa would own 57% of what they called New TechTarget. In exchange for that 57%, Informa would provide:

  • $350 million of cash so TechTarget shareholders could receive $11.79.
  • Omdia, the fourth-largest technology research firm
  • Industry Dive, a b2b publisher with 37 websites
  • Various other digital media brands, including InformationWeek, Light Reading, Dark Reading, Networking Computer, and AI Business
  • Netline, an intent-driven lead generation platform
  • “Access to IIRIS, Informa PLC’s proprietary B2B data platform.”

Merging Informa Tech’s assets with TechTarget would create a total b2b audience of ~50 million—truly massive. According to the deal presentation, the pro forma revenues in 2024 would be over $500 million, with the goal of hitting $1 billion in revenue within five years of closing.

Things are progressing for the deal. Toro CombineCo, Inc., the temporary name for the new entity, filed Form S-4 with the SEC back in June. Michael Cotoia, CEO of TechTarget, said on the earnings call:

We continue to make good progress in the combination. We did file the S-4 back at the end of June timeframe. We’re on track. We’ve scheduled an investor morning on September 19.

He offered interesting commentary about post-deal and integration.

We’ve got to understand the assets of Informa Tech, the people, the business, how they work in our proposed operating model going forward. We’ve done a lot of diligence on that on both sides. So we expanded and laid out a proposed operating model. We’ve looked at the executive team, what we call executive minus 1, executive minus 2. So we’ve made all the right moves to make sure that we’re ready for the close, which we expect to be on time.

In terms of the synergies, what we say here, we still feel very confident on the numbers that we stated. It was $25 million in expense and $20 million in revenue over the course of the couple of years post close, and we still feel very confident in those numbers.

We’ll gain a deeper understanding of what comes after the deal closes at its investor event on September 9th.