EQUITY RESEARCH
March 10, 2024 Blog
Continued Web Traffic Momentum Reveals
VerticalScope Well Positioned For Q4 & Q1
We track global web traffic to e-commerce, payment processing and other
industry-specific websites. These trends are based on ~90 of the larger
forum websites owned by VerticalScope that span automotive, powersports
and others. Our aim is to provide unique and directional insight to investors
based on these underlying traffic trends. This is our 57th Blog of the series.
Key Points
This week’s blog reveals that trends across the forum websites we track for
VerticalScope continue to gain strength as we progress through Q1.
Improving monetization rates from rising video ads and a better U.S. digital
retail advertising market suggest that FactSet forecasts for VerticalScope are
achievable.
Web traffic to the aggregate VerticalScope domains that CIBC tracks has
improved 29% in Q1 compared to 16% Y/Y in Q4 (vs. -12% in Q3). This
reflects, in part, a rebound following the drag of the Google search algorithm
update in Q1/23. Data for Q1 is up to and including March 5.
This improvement extends across VerticalScope’s three largest industries,
which combined represent ~60% of the company’s overall revenue. This
includes automotive forums, which are up 36% so far in Q1 and 23% in Q4
(vs. -9% in Q3), powersport forums at 45% in Q1 and 36% in Q4 (vs. -7%
Q3) and outdoor forums at 26% and 14% (vs. -7% Q3), respectively.
The improvement in web traffic trends in Q4 and so far into Q1 are
supportive of FactSet expectations. These also forecast an acceleration in
digital advertising revenues, with Q1 projected to grow 7% Y/Y and an
improved Y/Y decline of -3% forecast for Q4 (vs. -4% reported in Q3).
VerticalScope will report its Q4 results after market close on March 13.
Another catalyst to VerticalScope’s shares is Reddit’s upcoming IPO. News
reports indicate that the IPO may be priced on March 20 and begin trading
on March 21 (Inc.com). While Reddit’s metrics reveal the vast difference in
scale between it and VerticalScope, its IPO should nonetheless provide a
useful valuation mark for the digital advertising industry. At 73MM average
daily active unique users and an ARPU of $3.42 (based on daily active
users), Reddit dwarfs VerticalScope’s 100MM monthly active users and
ARPU of ~4 cents (monthly active users).
A final catalyst is the potential of content providers like VerticalScope to sign
licensing deals for GEN-AI large language model training. Reddit already
signed a $203MM multi-year contract with Google. It represents a potential
opportunity for VerticalScope, whose forums also offer user-generated
content and may eventually be viewed as a valuable LLM training tool. Strong Web Traffic Momentum Positions VerticalScope Well
SimilarWeb provides CIBC with access to web traffic patterns which provide useful insights on how certain web domains are performing. This data allows us to compare the Y/Y change in daily web traffic to various websites since 2020. Although the data does not report the conversion of web traffic into a transaction, in our view, it serves as a good proxy for understanding social media usage within the digital advertising space. We track data for ~90 forums owned by VerticalScope across numerous verticals.
The heatmap in Exhibit 1 shows the Y/Y web traffic growth rates across quarterly and
monthly periods for the aggregate VerticalScope domains we track, listed by industry. It also includes Y/Y revenue growth for the company.