There's a lot changing in retail and our initial impressions of Maxpoint (MXPT, pending) suggest this is one company that is likely to succeed as one of the new retail technologies that can effectively bridge the gap between online advertising and promotion with local in-store sales.

We've often wondered what companies might fill the void between easy online discovery and local fulfillment. Amazon is trying to extend their end points to local in major urban areas but it's a far cry from finding what you need in a nearby store in a suburb or smaller town.

Targeting ability has improved for national brands but it's still crude. It's very typical to experience very different demographic profiles between neighborhoods and over very short distances in suburban communities. In one there's a Starbucks, a Whole Foods and a Shake Shake and 1/2 mile away in another there's a Dunkin Donuts, a Stop & Shop and a McDonalds. Promoting a "spinach feta egg white wrap" works well in one whereas a "candy cane creme-filled donut" works better in another.

Local retailers are also looking to their suppliers and brands to provide more effective targeted advertising that actually takes into account inventory. If there's little or no stock available advertising is just aggravation. Conversely if stocks are swelling and the goods are perishable or seasonal the advertising and promotion should be cranked up.

Maxpoint has built a more integrated solution that aims to help address the needs of national brands and retailers catering to consumers. In addition to the software they have made the data more granular by creating very small regions or "Digital ZIPS" to improve over the traditional postal ZIP codes.

Revenue growth and margins are good at Maxpoint - $106M in 2014 is up from $66M in 2013 and after being EBITDA positive they are losing some money now to grow faster. Gross margins are high so ultimately 25% EBITDA margins would be attainable.

Valuation at the initial filing range is attractive - at the $11.50 mid-point the 26.5M shares outstanding yields a $300M market cap. It's too soon to tell if the range will be raised but it's a distinct possibility. We will post an update to this note on the coverage page along with the transcript of the roadshow and an IV model.

As a new feature of IPO Candy we have started to document some of the process work behind our research and analysis. The first one of these videos is about "parsing the risk factors" that are enumerated in the S1 filing.

In the case of Maxpoint there are a few yellow flags to note:

1. There's some customer concentration. About 1/3 of their revenues come from their top 10 customers. Customers appear to be happy but if two or three in the top ten paused or delayed purchases it would have at least a short-term impact.
2. Revenue is by CPM and without long-term contracts. Campaigns could be paused or canceled for any reason ranging from lack of effectiveness to economic softness. Maxpoint doesn't have long-term revenue visibility although trends thus far have certainly been good.
3. Advertising companies act as a channel for Maxpoint and some are current or would-be competitors. As Maxpoint grows and becomes successful there could be some desire to "cut them out of the loop" if credible alternatives exist.
4. Finally the company has the same privacy and regulatory risks that bedevil attempts to deliver greater personalization and real-time content.

All and all Maxpoint should be a successful IPO and an attractive long-term investment based on the opportunity and approach. We've added to our coverage list so it will appear there along with regular updates. Post-IPO will evaluate it for inclusion in the IPO Candy Folio.