RE: Magnite, The Trade Desk, Tremor24 Feb 2021 11:50
Brubru24 - thanks for the link. Article generally agrees with my lines of thought and opinions that I have previously posted.
I would wish to add - it's all about CTV now going forward, and this is only getting started. The US is just getting off the ground here, and then the rest of the world is to follow! The shift from linear TV, to streaming, is all pervasive – ads will be digitalised, targeted and programmatic. It has to pass through a digital ad tec system. The operating costs, though not strictly fixed, are as good as fixed as you can get – it’s an IT platform, with upgrades needed and costs to roll out globally, ie very high operational gearing / incremental profits from increased revenues. (The risk is to underestimate future profits on a massive scale, rather than underestimate increases in costs.)
US ad tec is on PER of now over 100, more than 200 on a multiple of EBITDA. Take the 100 PER. If profits double, the PER becomes 50. Double profits again, the PER is 25. How many years will it take to double profits and double again? I address this to the stock market at large – “it’s YOUR call”. What if it’s only three years? Will the TTD be on a PER of 25 if that comes about? Not on your nelly. Is TTD overvalued – no. It’s where the market is pricing it, by balancing the risks / returns that are probably foreseeable from where we are now.
The question is, where does this leave Tremor? TTD is already doing 10 times the amount of business of Tremor. But Tremor, has significantly higher gross margins, being on both the DSP SSP sides. Is Tremor just too small and will it get squeezed out? Given the current trading figures from the company, this does not appear to be the case. The global market is hugh. I am also increasingly thinking that Tremor is actually carving out a niche part of the market for itself and is not trying to compete directly with the big boys in the mass market, for example Unruly has this ‘emotional intelligence’ data thing going on. It sounds niche, a bit odd, but that certain advertisers want it, in certain circumstances, and because it’s different it commands a bigger profit margin. The management is smart enough to know to take a niche direction, and I think that’s why it’s gone to both sides (both sides are in the niche). In other words, it becomes monopoly like in the niches it chooses to go for.
But the stock market does understand niches, doesn’t like them, doesn’t trust them. Because niches have a habit of being short lived, and therefore the market does not price in profits into perpetuity – for the time being, I think this is one of a handful of factors holding back our share price. Investors will need to hold their patience as well as their nerves on this one.
And that’s MY call. My opinion, my research, my money.
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