My 15 Takeaways From Q2 Conference Call – Buckle Up…Conference call was real BULLISH Tal & John have demonstrated that they have a good control of the business but keep things very tight the chest. There is no question the underlying momentum in the business is accelerating and we got a major catalyst in 2H that could take the growth rate materially higher or at least sustain it at close to 100% organic growth rate.
- Programmatic Ad Market 80B TAM growing 24% YoY – IMPACT: They are operating in a market where the addressable market is growing by 20B a year. You look at the market cap of AcuityAds relative to the TAM the runway for growth here is endless.
- Acuity Putting up 4x Sector Growth Rate 20x Ad Growth Rate – IMPACT: The AcuityAds story goes behind just riding secular growth trends. They are putting up growth rates at multiples of the underlying sector continuing to gain market share in ad spend within industry & sector.
- Connected TV Growth within AcuityAds up 800% YoY – IMPACT: This number blew me away on the conference call. Yes, probably still from a small base but this is where the market is going with all these DTC consumer TV packages. Just would like to point out The Trade Desk CTV division was up 250% and AcuityAds was up 800%.
- Television Based Ad Spend Will be 1/3 Programmatic by 2021 Thanks to CTV – IMPACT: This is massive, total addressable market growth for programmatic advertisers that will continue to take share. The acquisition of Visible Measures lined them perfectly up to grow into this market, this lays runways for that 20%+ secular growth rate to continue for years.
- Algorithm is Still Best in Class for ROI Generation – IMPACT: Tal mentioned this very proudly and appropriately, and it shows up in take rate and contract expansion they are seeing. This is the core of what makes Acuity tick and can’t be overlooked.
- Contract Expansion with Existing Clients – IMPACT: Tal gave examples of how big advertisers throw nominal amounts at the platform and see the ROI it delivers and comes back with massive orders. Couple examples he gave;
Client #1 – $250K initial contract expanded to $5M – 20x Expansion
Client #2 - $42K initial contract expanded to $168K – 4x Expansion
Client #3 - $7K Free Test expanded to $2M then to $3M – A LOT
Client #4 - $35k initial contract expanded to $300K – 8x Expansion
- Expect Margin Increase in 2H – IMPACT: Glad to hear discussion on costs, R&D should plateau or decrease in absolute dollars and OpEx to decrease as a percentage of sales on a go forward basis. Can’t be understated the importance of scale and this $100M revenue base seems to be that level where 0.40 – 0.50 cents of every dollar will start to flow through to EBITDA.
- Pipeline Filling into 2H and into 2020 – IMPACT: This is an important factor to consider as deal size gets larger and longer contracts it shows the faith advertisers have in AcuityAds. Tal pointed out that this time last year there was nothing lined up looking out 2 – 3 Qs and deal length was 60 – 90 days vs now they are getting contracts for entire 12 months’ time periods and out year bookings.
- EBITDA Margin Expansion YoY into 2H – IMPACT: Analyst did a good effort trying to pry an answer out of John and he stated that without question EBITDA margin will be double digit in Q4. I think you see margin expansion on a YoY basis and you can easily lay out a case for a blended EBITDA margin over 10% for 2H with Q3 (7 – 9% EBITDA margin and Q4 (12 – 15% EBITDA margin).
- Big Advertisers are Lining Up for New Self Service Platform – IMPACT: Crazy thing that you could see a further acceleration in growth rate for the current 100% organic growth rate of their self-service platform but the new platform that will be launching in 2H sounds very impressive. Big Advertisers’ that are potential new customers want to be part of the Beta Program because they love what they see and are lining up.
- M&A Opportunities are There but Not First Priority – IMPACT: I agree with them that this is the right approach, with organic growth so strong and the new Self-Service platform launching in 2H I think its not the time especially with the stock price where it is. Even though they have done a great job in the past structuring deals with little cash up front and have it payable with earn outs on the back end. M&A still an important part of growth but they are the luxury of being picky because the core business is doing so well and only looking for something transformational.
- Self-Service Growth in Q Driven my New Customer Additions – IMPACT: They stated that in Q1 Self-Service growth was drive by contact expansion and in this Q was driven by customer additions. Can’t get much more BULLISH than that, contract & customer growth.
- No Further Additions Required to Sales Force or R&D Spend – IMPACT: There was a massive investment into staff and R&D getting the sales force up to snuff and building out new Self-Service platform and now time to reap the benefit. This comes back to my confidence in where you are going to see significant margin expansion. Tal stated the interest level for the new platform is high and it has brought much more interest into AcuityAds without even adding Salesforce.
- Continual Development of AI Platform – IMPACT: Developing to include more input variables and making it less reliant on cookies. Prepares them for the future of the industry wherever it may go and builds further resilience into the technology.
- Smaller Players Continue to get Bought or Disappear – IMPACT: At the end of the day I think this is a takeout story itself, but the fact that they have been able to reach critical scale at this $100M plus revenue run rate so quickly they really could build something big here. I can’t see how they have any intent selling this business for anywhere near 1 – 2x Sales, if someone wants it… they are going to have to pay up.
Anything under 1.55/share bought deal price is a steal IMO. I wouldn’t be surprised and would love to see insider buying pick up again ahead of the Self-Service Launch because that Q and guidance was too strong to ignore.
One of the more BULLISH conference calls I have heard. Organic revenue growth is so impressive and on the cost side they have reached a stabilization and plateau level where revenue growth will start to flow significantly down to the bottom line.
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