King of Traffix

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If you attend Affiliate Summit, you should have come across a company called Hot Rocket Marketing and their affiliate network RocketProfit.com. Then again, given their low key demeanor, you might not have. At Affiliate Summit they had a booth and helped sponsor the blockbuster party, but they did that, it seemed, not to gain attention, but to contribute to the fun of others for the success they have had.

Interestingly enough, you couldn’t tell from their affiliate site what has lead to their success. Their site almost blinds visitors with its dominating red hues, and the offers listed on the front look like any other network save for one of their longest running exclusives, Group Lotto, a Web 1.0 throwback operated by parent company Traffix, Inc (NASDAQ: TRFX). Traffix is almost as well known for who came out of there, most notably the founders of Datran, than what the company does. They have been public for almost twelve years, have a stock chart that has more peaks and valleys than a major mountain range, and revenues less than half what some of the bigger private affiliate networks have along with a profit margin percentage more like a department store than Internet company. In other words, they don’t seem like one of the more interesting recent success stories in the direct marketing space, but as we know, appearances can be deceiving.

Shareholders of Traffix found themselves rewarded last week as news broke that New Motion, also publicly traded, but on the OTC.OB (“over the counter” as opposed to Traffix being listed on the NASDAQ with more stringent requirements) will merge with Traffix in a stock deal. You might expect New Motion to be the smaller company, but from a market cap perspective, New Motion eclipses Traffix by more than one and a half times ($90 million vs. $143 million). From a revenue perspective, though, Traffix comes out ahead with revenues approaching $20 million for the second quarter of this year compared to New Motion’s almost $7 million.

Through the power of merger math, New Motion will end up owning 55% of the new entity. If you don’t follow the mobile marketing space (the subscription service kind not the ads on mobile sites), you might still wonder why these two companies would merge. According to the release, one is “a leading digital entertainment company providing a broad range of online and mobile content services,” and the other “a premier interactive media company.” Together, they “will allow consumers to experience content where they want it, how they want it, when they want it. The new entity will operate a vertically integrated mobile entertainment network with diverse customer acquisition platforms, an extensive library of proprietary digital content, and a large, growing subscriber base.” As to the why, the answer comes down to check box.

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