The internet transformed advertising, and advertising, in turn, has impacted the net. From pop-up ads to pay-per-click to targeted advertising, finding and reaching the target audience – the raison d’etre for marketers and advertisers, has exploded and evolved in the digital age.
And along with it has come an array of ad tech companies, specialists in the software and tools that brands and agencies are using in their online advertising – setting up, managing, and analyzing their digital campaigns, the results, and the data collected. The increasing use of smart devices – mainly smart phones and tablets, but running the range from laptop computers to smart watches – has been the main driver of the ad tech market’s expansion.
That expansion is substantial. According to Verified Market Research, the ad tech software market reached $16.2 billion in 2018, barely missed a step in the corona crisis year, and is estimated to reach nearly $30 billion in 2026. Watching that explosive growth is Needham analyst Laura Martin – ranked by TipRanks in the top 1% among the Street’s stock watchers, and an expert on the tech sector. Martin has weighed in on some of the industry’s top companies. These are firms with Buy ratings from the Street – and Martin sees them with upside potentials starting at 30% and going up from there. Here are the details.
The Trade Desk (TTD)
Based in Ventura, California, The Trade Desk got its start in 2009. The company offers users a set of software platforms designed for online media buying, offering customers data, inventory, and publisher integrations, and facilitating custom development to meet users’ needs. Trade Desk’s platform lets digital advertisers and brand managers leverage their data for organic growth across the internet – on apps, podcasts, streaming TV, and ‘traditional’ websites.
Even after slipping from its peak share value in the early part of this year, Trade Desk stock remains at high level – it is up 149% in the last 12 months. In February, the company reported its full-year 2020 results, showing $836 million in top-line revenue, a year-over-year increase of 26%. EPS for the year came in at $4.95, up 118% uptick from the year before.
Two key metrics from the earnings report show the underpinning of Trade Desk’s revenue and income growth. The gross spend – how much advertising spent via Trade Desk’s platform – in 2020 reached $4.2 billion, a record for the company and an increase of 34% yoy. And, the company reported a 95% customer retention rate in the quarter. Trade Desk boasts that it has reported such high customer retention every quarter for the past 6 years.
This isn’t to say that Trade Desk faces no headwinds. As noted above, the company’s stock is down since the beginning of the year – a fall that coincides with the beginning of Google’s planned phaseout of third-party cookies on the Chrome browser. These cookies, hated by web users as a violation of privacy, but beloved by advertisers as a massive source of data collection, have already been removed from the Firefox and Safari browsers. Google’s phaseout will remove them from most web surfing activity, and take a major tool away from digital ad tech.
However, Martin believes the bullish case for TTD remains intact and actually thinks that as a leader of the “Open Internet,” the company is poised to “take back market share from the “Walled Gardens (ie, FB, GOOGL, AMZN)” due to “better comparability, measurement, and the shift to CTV ad units.”
“TTD represents a pure play on the fastest growing sector in advertising – digital ad growth, including connected TV advertising. TTD represents the 800 largest and most demanding ad agencies and global consumer brands, which is a meaningful barrier to entry,” the 5-star analyst further said. “TTD is the largest demand side platform (ie, buyer of ads) in the “Open Internet” at $4B of total ad spending on its platform in 2020 (about 10% of total open internet ad spending).”
Along with her Buy rating, Martin gives TTD shares a one-year price target of $1,000, suggesting an upside of 37% for the stock. (To watch Martin’s track record, click here.)
Overall, Trade Desk has a Moderate Buy rating from the analyst consensus, based on 15 recent reviews that include 10 Buys against 5 Holds. The stock is not cheap, selling for $729.31, but its $915.08 average price target implies an upside of 25% for the coming year. (See Trade Desk’s stock analysis at TipRanks.)
Magnite (MGNI)
The next stock on our list, Magnite, is a “new” company in the ad tech field – it was formed by the merger of two veterans. In 2020, Rubicon Project and Telaria combined, and the result, Magnite, has quickly become a big player in the ad tech industry. The company offers customers ad sell technology across a range of online formats, including desktop, mobile, audio, and streaming video. Magnite offers its users the ability reach their own customers – and potential customers – quickly and efficiently.
Born of a merger, Magnite has recently grown through a merger. On April 30, the company closed its acquisition of SpotX, in a move that created the largest independent CTV and video advertising platform. The acquisition came with a total purchase price of $1.14 billion, of which $640 million was in cash and the remainder paid in 12.374 million shares of MGNI. Magnite will discuss the merger transaction when it reports 1Q21 results later this month.
In the meantime, it’s instructive to look back at Magnite’s recent performance. In 4Q20, the company reported $82 million in revenue, a gain of 69% year-over-year, and up 34% from Q3. The company reported GAAP EPS of $0.05, beating the estimates by $0.02. Like Trade Desk above, Magnite shares have come under pressure in recent months, although the pullback has followed a massive run up – MGNI shares have appreciated by 458% over the past 12 months.
Looking ahead, Martin sees the SpotX acquisition as the key here, writing, “Together MGNI + SpotX will represent the largest CTV and video ad platform (SSP) in programmatic. 67% of PF revs will be video revs (about half from CTV). By implication, MGNI will always be in the consideration set of SSPs for publishers that have video or CTV ad units to sell. Since digital markets are generally ‘winner take most’ markets, size begets size owing to data superiority. As data improves with scale, this creates a positive flywheel which puts smaller competitors at accelerating AI and data disadvantages.”
Those comments back up Martin’s Buy rating on the stock. Her price target, $70, indicates her confidence in a robust 74% one-year upside potential.
Wall Street’s analysts are mostly bullish here, as shown by the 5 to 1 split between Buy and Hold reviews, giving MGNI shares a Strong Buy consensus rating. The stock has an average price target of $65.17, which suggests a 63% upside from the current trading price of $40.05. (See Magnite’s stock analysis at TipRanks.)
Viant Technology (DSP)
Last on our list of Needham picks, Viant Technology bills itself as a purveyor of ‘people-based advertising software.’ The company offers an omnichannel demand-side platform, Adelphic, used by agencies, brands, and media buyers to execute ad campaigns on connected and linear TV, desktop and mobile devices, and through digital audio.
Viant has been in the ad tech business for over 20 years, and in February of this year it entered the public markets. The IPO was initially priced at $25 per share, and closed its first day’s trading at over $47. The company sold over 10 million shares of common stock, and raised approximately $213 million in the offering. Since the IPO, the stock has slid by 31%, although the share price remains well above the initial IPO pricing, and the company’s market cap is a respectable $1.94 billion.
In March of this year, Viant released its Q4 and 2020 full year results – its first such release as a publicly traded company. For the fourth quarter, revenue came in at $56.6 million, a 9% yoy increase, while gross profits hit $30.5 million, up 31% from the year-ago quarter. The full year results were $165.3 million in total revenue, virtually flat from 2019, and $77 million in gross profits, a gain of 9% from prior year.
The company reported several interesting metrics in the quarterly results, showing increased customer use and video spend growth. Viant’s platform saw 36% spend growth yoy in Q4, while the spend on CTV grew 71% in the quarter – and 70% in the full year. For 2020 as a whole, customers’ video spend represented 62% of the total.
Looking at Viant, Martin notes that the company has relatively low exposure to the sector’s coming ‘cookie crisis,’ and writes, “…confusion over the future of third-party cookies is boosting incoming call volume to DSP because ad agencies and brands know its platform doesn’t rely on cookies to target its placement of programmatic ads. Therefore, in addition to benefiting from the rising tide of growth that DSP shares with all other open internet ad tech competitors, we believe that DSP is also in the right place at the right time, as it can take advantage of a 4-year track record of successfully selling software that allows clients to purchase programmatic advertising without relying on cookies.”
Martin gave the stock a Buy rating and a $62 price target – implying an 89% upside for the next 12 months.
Looking at the consensus breakdown, the overall view is more cautious; There are 5 recent reviews, and they break down to 2 Buys and 3 Holds, for a Moderate Buy consensus rating. The average price target, however, is a bullish one; at $57.33, the figure suggests a one-year upside of 74%. (See Viant’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
