AcuityAds Holdings (V.AT) Interview with Tal Hayak, CEO
AcuityAds (TSXV:AT, Forum) is a tech company in a crowded space – that of online advertising. That sector is a cutthroat business, with the likes of Google throwing serious weight around attracting billions per year in revenue serving videos and banners.
So how does a bootstrapping Canadian start-up become a force in that space? Quite simply, by doing things better.
Acuity has developed a platform that allows the trading of ad units, which is done in an auction-based system, in real time. What does that mean?
A user has just landed on CNN.com – Acuity has data about this user that shows he’s been looking at car insurance sites and he’s 35 years old, and he drives a Fiat, and he has kids, and it’s raining heavily where he lives right now.
Acuity’s algorithm takes that information, and makes 2 decisions: 1) which advertiser is this user most valuable for 2) the $ value for placing the selected ad in front of the user.
If Acuity price is the highest, the auction closes and ad gets displayed while said user is waiting for the page to load.
Acuity has seen tremendous results for publishers, advertisers and users through their technology, and revenues have been ramping up annually as a result.
We took some time with CEO Tal Hayek recently to go deep on the Acuity investment opportunity and find out exactly what they’re sitting on here.
Q: Explain programmatic advertising, if you would.
A: The classical mode of advertising like you would see on the TV or in a newspaper or hear on the radio is what I would call the shotgun approach. In these formats, advertisers send their message to a wide audience. Not everyone listening to or watching that particular ad is going to be interested in, let’s say, a sale of women’s shoes or a monster truck rally, so in the end the ad fails to reach its engagement potential. With programmatic advertising, the ads are placed in front of those who have shown interest or have a potential interest in that particular served ad, thus optimizing its exposure to not only a basic metric like men 18-35, but it can be much more specific directed only to those who enjoy hunting and have travelled to the Yukon.
Q: Exactly how much data do you have to go on when you’re serving an ad?
A: Based on a huge amount of data that we have on consumers, we’re able to do a lot more than traditional demographics are capable of. On the publisher side, unsold inventory has traditionally been sold to the ad networks for pennies but, today, using AcuityAds, both the unsold and high value ads go into an efficient system where the highest bidder buys the ad, the publisher maximizes their revenue, the advertiser gets in front of a high value lead, and the consumer wins because they see ads that are relevant, that they’re looking for, and they can relate to. It’s win/win/win.
Q: One of the big issues with online ads, traditionally, has been the amount of work needed to figure out ROI. How does Acuity differ?
A: Classically, with TV, print and radio, there wasn’t very much that could be gleaned about an ads performance, so companies and ad agencies weren’t able to really tabulate any kind of real ROI on that marketing investment or understand what may have worked better for that particular campaign. Now, we can easily pull those performance metrics from a served ad within the first minute of it being placed. We can tell whether an ad was displayed on a user’s screen. We can also tell if you clicked on it, whether you purchased any products due to it. All of this can be tracked literally within a minute. This allows us to immediately modify the target audience to optimize performance, if we find the ad isn’t engaging well. Companies or agencies can see an accurate ROI on their campaign and use this data for optimizing future ad designs.
Q: Advertising online is an ultra-competitive space, how exactly do you penetrate that market, and scale out in multiples?
A: When we started, we were literally introducing programmatic advertising to the market, so it was challenging to get people to try it out but, once tested, companies were amazed by the results. When we went to market in 2011, we were begging for people to test the system, and we did about $1m in revenue. The next year was $5m, and the reason is, not because we were buying market share but because we were performing better than anything of these companies had seen before. We did $10m in 2013, and just under $14m last year as we brought new advances online.
Q: How much time in your business is spent continually adapting to the changing market, and new technologies?
A: I’d say the market is adapting to us. The industry in general is growing big time as people shift from traditional marketing to programmatic. As the brands shift their ad dollars from traditional areas to ours, we expect to see huge growth. Last year the market grew 71%. The market is incredibly hot. Chango are a Canadian programmatic advertising company that was purchased back in May by the Rubicon Project, an American ad exchange, for $122 million. So there’s a lot of opportunity out there.
Q: People think of online advertising as being all about banners, but what do you see a few years down the line?
A: As you look at the future, TV is rapidly changing. It’s going digital and people are watching TV in new ways. The younger generation is used to watching TV on their mobile devices, tablets and computers. When TV proper turns fully digital, we’ll deliver personalized ads to your TV.
Q: That would be a massive shift. If I didn’t have to watch insurance company ads all day, I’d be more inclined to watch TV. That’s the ground shift TV has been looking for as it has fought off home video and streaming.
A: It’s already happening today. A lot of people consume TV-styled content on their computer, through streaming services or Youtube, and so video advertising of 15- to 30-second pre-roll ads is commonplace. It’s less of an obstruction to the user, not as long as the usual 3 or 4-minute commercial breaks, and it is more engaging to the individual users.
Q: Way more effective than ‘banners aimed at males aged 25-35.’
A: The idea is, if you are looking for something specific, you’re more likely to click on something you’re looking for specifically. If you’ve been researching a trip to Mexico, you’re more likely to respond to an ad from Air Canada offering a Mexico deal than you are to a washing powder. You’re paying more attention, you’re more likely to click, and you’re worth more to that advertiser and publisher as a result. We’re moving in that direction.
Q: Bringing it back from the blue sky to the now, from an investment point of view, it’s good to see a company drawing in the purchase orders. Your news flow is stacked with six-figure deals.
A: We believe we’re way undervalued, we also know that from a business side of things we’re doing everything right, we’re performing well, and the stock is going to catch up to that.
Q: What’s your current burn rate?
A: We’re lowering our burn rate, and very focused on that. If you look at our Q3 of last year, the burn was $1.3m of EBITDA, from memory. In Q4 we brought it down to approximately $900k EBITDA. And Q1 of this year we maintained that, even through seasonal Q1 dips in revenue we sustained that rate and continue to.
Q: How did that schism between where the company should be valued and what the market actually values it at, occur?
A: Our focus was not on the investor relations side in the early days, but the stock price is rolling upwards now. We’re very happy with how things are going, and we’re doing it the old fashioned way, telling the story, a lot of retail exposure, and putting results on the board.
Q: You’ve managed to keep a tight float, but how does it look on the financial side? Are you break -even or in a growth phase?
A: In 2013, before we went public, we were at $10m revenue and approximately a million EBITDA positive. We decided to take the company to the next level with self-serve ad booking and a push for US sales. When we committed to that, we knew we would go into the red on a temporary basis, which we have. We raised $5.7m and invested in those upgrades and now we’re on the way to becoming EBIDTA-positive and very excited to get there. That’ll be a game changer from a valuation point of view. The investments have been paying off.
Q: Explain the benefit of SaaS self-serve.
A: Previously, a client would come to us for say a $200,000 campaign and we would manage it for them, maybe a four, five week campaign. We have an ad execution team that worked for them and at the end of the campaign we would negotiate a new one. Just over ayear ago, we decided to add resellers to our system; they could be agencies or in the providing space but license their tech from us, could be individual companies who want to be responsible for their own experience. They have their own sales people, ad operation teams, customers. It makes things very scalable for us. Self-serve represents more than 20% of our revenue today, and it will be the future of the company.
Q: Self-serve makes you very scalable if this thing catches fire, yes?
A: The idea for us is to bring the business to a place that works as self-sustaining, and the self-service allows us to do that. Our overall business model is highly effective in helping us achieve positive EBITDA in the next few quarters without sacrificing the aggressive growth we have been showing. As a result, we expect to reach a point where we don’t have to go to the market for anything, with the exception of acquisitions. If we find somebody who makes sense to acquire, we might go to the market for additional capital.
Q: What would be the likely target?
A: There are a lot of things we could potentially get into, but something very synergetic to us would be someone in the programmatic space today, where we can improve their margins and bring in expanded market share.
Q: Talk to me about weather targeting; that’s definitely unique to your system, but why is it important?
A: Pharmaceutical companies have taken great advantage of this with asthma medication. They use weather triggers, current or forecasts, and when the pollen count hits a certain number or when the humidity hits a certain area, that’s when they start spending money on ads and it’s proved to be very effective. A number of industries can take advantage of this – travel industry, for example. Studies show people’s buying mood is different depending on the weather.
Q: And presumably the same applies to traffic conditions, seasons, hour of day, location…
A: Absolutely.
Q: Going forward, what should investors be watching for?
A: Q2 is going great. We’ve said that previously and stand by it. The company is growing. We’re confident the investment community will catch up with us on valuation and it appears to be doing so lately. In our last round, we added a significant amount of institutional investors, and also did a short form prospectus to bring in some retail guys. Now we have hundreds of shareholders we didn’t have previously, and we see that in our daily volume.
Q: Looks like maybe one or two big deals from being an attractive acquisition target. Is that in the back of your mind?
A: We had, at the end of 2013, an offer to buy us at $72m. We elected to keep going by ourselves because we believe the company is going higher than that. The ad-tech space had a lot of acquisitions last year, and I’m sure we’re going to be a target and will be approached. But this isn’t what we’re working for – we’re working for the long run. If we get taken out, high possibility it might happen, great, but that’s not where we’re spending any of our time and focus.
Q: The wave of investor interest appears to be growing.
A: Last few weeks we’ve seen a lot of activity. People looking for us, volume up, so we’re here for anyone who wants to speak to us. There are a lot of great start-ups in Canada right now, and I had one in 2004 that I sold, and I really think Acuity will be the next big thing. My contact information is on the website and I encourage anyone to get in touch.
More information on AcuityAds can be found at https://www.acuityads.com
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: AcuityAds Holdings is a Stockhouse Publishing marketing client and the author has purchased stock on the open market.