AcuityAds & AdCore - Hyper Growth in Digital Advertising...Just wanted to hit on this one real quick, as a big believer in investing in small cap Canadian tech with significant secular growth I feel obligated to hit on this.
So over arching these two plays is an industry in digital programmatic advertising with an annual growth rate continuing to grow 20%+ YoY.
Adcore – ADCO.V
Growing aprox 50% YoY Cashflow & EPS positive with Gross Margin running 60% and EBITDA margins in the 30-35% range.
Operates in the Social and Search Segment as an associated service which helps with analytics and decision analysis on top of platforms such as Google and Facebook which represents 66% of the digital ad space.
Official Partner with the big 4 advertisers of Google Facebook Amazon & Microsoft
Growth Drivers – This newly public company is an Israeli based company that has a massive long-term contract from the Israeli government on a 5-year term. All growth so far has come outside of the North America market and the funds raised from the IPO are going directly to build out their North American operations. All this growth before they tap into the largest ad market in the world, you could see a further acceleration in the growth rate.
Strategic Value – Just would like to point out they have 3 unique ad tools with one being Feed:ito which is an online ecommerce shopping tool that is already being used by Shopify. As Shopify grows its ecommerce and logistics business similar to the Amazon model, advertising seems like the natural next fit for Shopify to support its customers. Given that Shopify trades at >30.0x Sales GULPPP… wouldn’t it make a lot of sense for them to use some of that overprice stock as currency and purchase AdCore? I think it’s an interesting concept.
Trades at <2.0x Net Sales w a 50% Growth rate assumption on 2019 numbers.
MY TAKE – Worth 4x FY20 Net Sales gets me to a target price of 1.00/share give or take some pennies.
AcuityAds – AT.TO
Growing apox. 100% YoY will be Cashflow Positive this year with Gross Margin running 50% and EBITDA margins 10% range.
Operates in Display Advertising with a Self-Service offering giving advertisers an alternative to the Google Facebook offering. Big beneficiary as the switch to video and the growth of connected TV and streaming services.
Now at scale ($100M+ Revenue Run rate) in the fragmented Ad exchanges sitting on the supply side as the demand side platforms have been pushed out.
Growth Drivers – The organic growth here has been amazing in FY19. Under the hood it looks even better as they are lined up for it to continue. Keep in mind they have their new self-Serve platform launching as we speak, they have officially launched their decision technology in Spain and Latin America and their Connected TV division is putting up 200%+ growth.
Strategic Value – Just go straight to the direct comparison. The Trade Desk trades at 13x Net Sales with a lesser growth rate. I think it would like quite compelling for them to take out AcuityAds especially given the fragmentation in the space and AcuityAds success and initiatives growing internationally. All about scale.
Trades at <1.0x Net Sales w a 100% Growth rate assumption on 2019 numbers.
MY TAKE – Worth 3x FY20 Net Sales gets me to a target price of 6.00/share give or take some pennies.
So which one? I say both!!!
You have to put this in context, the industry giant on the NASDAQ – The Trade Desk still trades after this sell off in high multiple tech stocks at 13x Net Sales w a mid 30% growth rate.
The discount these two Canadian plays trades at can’t be ignored.
Pick one, pick both or pick none. My big takeaway is that the secular growth here is massive growing 20% YoY with these 2 companies putting up growth rates significantly higher. Keep in mind, during the last recession in 2009 Google still put up a 9% YoY growth rate. The growth rates are so strong they can grow through economic uncertainty.
The digital ad space is very niche, these two approaches gives you two different surgical approaches that are not competing with each other that are competing for different dollars, hence they both can be very successful.
LONG AT.TO & ADCO.V