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Ad Tech looks stable if not bullish
With the rest of the market missing expectations and giving poor guidance, Ad Tech (businesses) have so far been pretty stable.

Granted, stock prices have dipped with the rest of the market, but the businesses are still performing.

$MGNI reported EPS in line at $0.08, a 166% increase YoY; with sales coming in at $118M, beating the estimate of $107M by 10%, +95% YoY.

$TTD EPS of $0.21 beat the $0.15 estimate by 40%, a +50% YoY gain. Sales came in at $315M, beating the estimated $304M by 3%, a +43% YoY gain.

$PUBM, I don't own anymore, beat EPS estimate by nearly 200% coming in at $0.14. Sales and Q2 guide were in-line with estimates as well.

$CTV just missed the EPS estimate of ($0.05), coming in at ($0.06), however sales beat by 21%, coming in at $25.9M. They reported organic YoY revenue growth of 30%, and +40% revenue growth including their new acquisition of TV Squared. Losses are expected to narrow next Q, and FY'22 revenue is expected between $135-$140M.

$ZMDTF had a +183% YoY Q with revenue of $18.7M and FY'21 revenue of $52.6M, +107% YoY. They also finished the year with a positive EBITDA of $5.8M for FY'21. The company is guiding for a FY'22 revenue of $74M-$80M, approximately +50% YoY.

We're still waiting on reports dates from $APPS $MOBQ $MVVYF.

$KBNT is on the bubble from last Q., they report on May 16.

And the one I'm most anxious/excited about, AcuityAds $ATY, reports on May 12th. They also just got approval for a stock buyback plan. I'll be watching this one closely.

I'd like to consolidate some of these Ad Tech positions after earnings season is over, but so far I've been mostly pleased with the sectors results.

How are you guy's feeling about the Ad Tech sector over the next few Q's? 👇

🦜
I've seen some interesting buzz surrounding $TTD recently. Their earnings report was very strong, and their partnerships, especially with $WMT, could drive further growth
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Ad Tech: What's the Market Missing?
An investors advantage in the market is recognizing a trend before the general market and trading algorithms price in the upside.

I’m a huge Ad Tech bull, not a surprise if you follow me on social media or subscribe to my newsletter, but I think the market is missing something in Ad Tech, and it’s worth exploring further.

Where we've been

From “barkers” standing on a street corner, to print ads (signs & newspapers), radio ads, TV ads, banner ads, pop up ads, video ads, to CTV; we’ve come a long way in advertising.

There was a paradigm shift with each new form of media (print, radio, TV, Internet, and now connected television “CTV”).

Although we still see remnants of all the other forms of advertising previously employed, each new form of media has slowly taken share from the previous. Along with that media change there’s been a shift in the supply chain of advertising as well.

Advertising grew from a very local and personal experience into art departments, multi-national ad agencies, publishers, buy & sell side platforms, online market places, and much more.

To get an idea of all the different players in the industry, check out this edition of stock Squawk: “The World of Ad Tech

For a closer look at how CTV developed; Here’s an excerpt from Conviva with an excellent history summary.

You can find the full article “here”:

In 1984, the Cable Act significantly deregulated cable, and with this deregulation, there was an explosion of new cable operators that became the first major competitors to broadcasters until satellite TV entered the market in the ‘90s.

1994 saw DirectTV become the first satellite TV system. Then in 1996, cable providers spent $165 billion to overhaul their networks for high-speed internet over the next eight years. These upgrades were essential in setting the stage for OTT. The digital video recorder (DVR) was also critical in this evolution. In 1999, Americans got DVR which taught people how to be in control of the content they watched—what, when, and how.

By 2009, we had the introduction of Web 2.0, the first iPhone, and analog TV’s switch over to digital, all of which pushed a sense of being able to watch whatever you want, whenever you want—even on a mobile device. Up until this point, media companies were focused on the technology challenges of delivery, operating their own delivery networks to reach viewers. With the advent of high-speed internet, new OTT providers emerged without the limitations and complexities of operating their own networks. But delivering content over someone else’s network presented its own challenges.

In the early 2010s, the FCC established rules and regulations around OTT, and smart TVs fueled a whole new set of OTT providers.

Where are we going

Here’s where it get’s interesting. (stay with me here, I promise it relates)

The car was invented in 1886. Ford built a prototype in 1896 (10yrs later), and his first assembly plant in 1903 (another 7yrs). In 1907 there were 140k cars in use, by 1910 cars overtook the horse for passenger travel, and by 1917 there were over 5 million cars in use; 35x just 10 years earlier. It was a slow ramp (21yrs) from invention to acceptance/adoption; but once it took hold there was no turning back.

The iPhone was introduced in 2007. In 5 years, the smartphone went from 3% of the market to over 50%.

Smart TV’s started being manufactured in 2015. In 4 years, connected TV penetrated roughly 80% of US households; and since then we had a little thing called Covid happen.

The point is, the adoption of new technology is happening at a record pace in normal circumstances, but when the stars align that adoption can be parabolic.

A larger and larger share of content is going to continue to move to connected TV. Viewers are going to continue to find more of their desired programming on connected TV where they can watch what they want, when they want. Advertisers are going to continue to follow viewers.

What is the market missing

So why has the market spent most of 2021 selling off Ad Tech?

The invention of connected TV created a new advertising platform. A year+ of lockdowns has pulled forward what was already an accelerated adoption rate. The speed of that adoption has create both problems and opportunities.

I believe the market is underestimating both the growth rate, and the speed of innovation happening in Ad Tech.

Most of the problems faced by Ad Tech companies revolve around the visibility into who ads are being delivered to, and their conversion rates.
The walled garden’s of Google & Apple are putting pressure on the industry by eliminating cookies and restricting the sharing of 3rd party data.

These aren’t surprises, and the industry has been working on them for years. Some companies are creating their own alternatives, such as The Trade Desks UID2.0, some are creating their own platforms to track and optimize campaigns for maximum cost/conversion such as AcuityAds & Zoomd, and others are creating their own 1st party data such as Roku & Innovid.

To the point, the old way of doing things is not going to work in the future. The Neilson data that the TV advertising world has depended on for decades is practically worthless for CTV (and was questionable for analog TV). There will be unique solutions that find their place in the market and provide unique investing opportunities.

On growth, no one could have predicted the Covid Pandemic and the subsequent lockdowns followed by the exponential adoption rate of CTV. Even still, the market continues to under-estimate the growth of ad spend generally, and digital ad spend specifically.

Paraphrased from a Wall Street Journal article last week, you can find the article here: “Advertising Market Keeps Growing Faster Than Expected” (Data from GroupM of ad giant WPP PLC quoted in the article)

  • In December 2020, ad spend was expected to increase 12% in 2021.
  • In June 2021, numbers revised to 19.2% growth and a total spend of $749 billion.
  • This December, revised again to 22.5% growth and $763.2 billion in ad spend.
  • 64.4% of total advertising in 2021 will go to Digital advertising, up from 52% in 2019.

“The growth rate of advertising in general, and digital advertising specifically, is far faster than we anticipated in June,” said Brian Wieser, global president of business intelligence at GroupM.

Zenith predicts that global social-media advertising will overtake television ad spend next year. The firm expects social-media ad spend will reach $177 billion in 2022, TV advertising is estimated at $174 billion. The pandemic has accelerated marketers’ shift into social-media advertising. “We would have gotten there, but we got there sooner,” said Mr. Barnard, forecasting head at Zenith.

Advertising growth is happening faster than even those closest to the data have predicted. They’ve significantly raised forecast twice in the last 12 months, nearly doubling their prediction, all despite the supply chain headwinds we experienced throughout 2021. Could they be under-estimating 2022 growth as well?

Outlook

I think Ad Tech is getting lumped in with the rest of unprofitable small/mid cap growth stocks being sold off. If the space was overvalued in Feb'21 (it was), it is undervalued now.

COVID may not go away, but the over reaction (public & market) will come to an end. Supply chain’s will un-bottleneck. Companies will be trying to get their products in front of customers.

Businesses will also be looking for the best returns on their investments (ROI). They will want assurance that their ads are getting in front of their target audience, and those ads convert to increased revenue. That’s going to require access to new media and new technology to track results.

That’s what the market is missing. It’s not missing that their will be ad spend, or even the increase in ad spend, in so much as it is missing:

  • How those ads will be created
  • How/where those ads will be delivered
  • Where those ad dollars will go

The walled gardens are still going to be major players (and recipients) of ad dollars. But new media & new technology has opened up a world of opportunity for new players in the game.

Some Interesting Players

I’m going to skip the obvious here. You guy’s already know plenty about Google, Apple, The Trade Desk, etc. They have all held up pretty well the past year. Let’s look at some others:

ROKU ($ROKU): After forming a double top near $500/share earlier this year, Roku has traded all the way back down to $200. Interestingly, it’s lost over 50% of it’s value 4 times since it’s IPO in 2018. The short term headwind of potentially losing YouTube on their platform has now been resolved with a multiyear agreement with Google. Additionally, Best Buy has pulled TCL Google TV’s due to slow & buggy software. This is more confirmation that Roku has a superior product. For investors, we should be watching ARPU (Average Revenue Per User) for signs of continued growth.

Magnite ($MGNI): The largest independent SSP (sell-side platform), largely growing in-organically through acquisitions. This is not to say they aren’t growing organically as well. The market has been penalizing in-organic growth the back half of 2021, but all the acquisitions has put Magnite in a position to capitalize on being a one-stop shop for publishers. Their focus on CTV (the fastest growing sector of advertising) should also boost their revenue growth in 2022. (They seem to think they are undervalued as well, they just announced a $50M stock buy back on 12/13/21)

Pubmatic ($PUBM): Nearly as big as Magnite, and growing largely through organic growth, they are becoming a significant challenger in the space. They are not as concentrated in CTV as Magnite, and I’ll be watching for signs of growth slowdown as more ad dollars shift in that direction. That said, their management team has been excellent, and I look for them to continue to outperform in 2022.

Digital Turbine ($APPS): Digital Turbine is in a unique space with virtually no competition in an extremely tuff barrier to entry market. Think the Apple Apps store, you know Apple’s cash cow, but for Android. I don’t think the general market truly understands what they do, and thus has resulted in some large swings in price.

AcuityAds ($ATY): You can find my recent deep dive into AcuityAds “Here”. They are a high growth company trading like a mature value play. 2022 will be an opportunity to prove who they are. Where they are trading today, there is huge upside with minimal risk. Recommend you check out the deep dive linked above.

Innovid ($CTV): Innovid is on the infrastructure side of ad tech, focused on ad delivery. Since they are not in direct competition with any of the other players in the space, they are in a unique position to collect data from all sides. Remember I mentioned before that one of the biggest issues with the new CTV media was there was not a good way to get insight on ad targeting and conversion? Well this is the company who could solve that issue with their access to first party data. They have the potential to be the Neilson ratings of the 21st century. You can check out my initial summary of the company “Here”.

Kubient ($KBNT): Kubient’s primary appeal for me is their ad fraud software “KAI”. They’ve gotten great early results, with beta users extending partnerships and spend. They’ve recently solved one of their biggest problems (recruiting qualified employee’s) by acquiring MediaCrossing. Adding built in revenue, cross selling potential, and as importantly experienced personnel. The’re trading at a $34M cap and have $27M in cash. The acquisition only cost them 500k and a promise of about 5% in stock IF they hit milestones in ‘22. There basically trading for cash on hand and just got a big rev bump, cross selling opportunity, & skilled employees. I like it.

There are other (smaller) players in my portfolio as well, such as ZOOMD ($ZMDTF) and Moovly Media ($MVVYF), both definitely worth taking a look at. Either one could be a long term winner with patience and a long term view. (I recently added to $ZMDTF and plan to add more to $MVVYF soon)

Summary

We’re going to see the narrative shift day to day over the next few months depending on how the market is acting. It’s important for long term investors to look into the future and see where the market is going, develop your thesis, and have patience for it to come to fruition.

*I currently have approximately 20% of my portfolio dedicated to the advertising sector.

You can find the full newsletter article, and sign-up to get a copy sent straight to your inbox here: "Stock Squawk"

Look forward to hearing your opinions in the comments 🙏👇

🦜
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Preparing for 2022
We’re just a month away from 2022. Now’s the time many people start rebalancing and trying to figure out how to align their portfolio’s for the new year.

There’s a lot of talk about how interest rate hikes will affect growth, and if I plan to change my investment style. So this is my attempt to answer these questions, and what I “currently” plan to do going into the new year.

2020, The first style change

I first want to re-cap where I’ve been on my investment journey. You can get the full picture by reading my first newsletter: “An Introduction

I started out in February 2020 primarily focused on Index & ETF’s with a few large caps added to the mix. Over a few months after the March ‘20 crash, I rotated out of those index and ETF’s and into individual names to take advantage of the historic post-crash bull market.

Whether smart or lucky, that strategy paid off well. I assumed, and have stated before, that when I saw a shift in the market I would change my investment style to match…

2021 A year of learning

In 2021, I failed to recognize the extreme valuation’s and looming correction we would get in February ‘21, and basically rode the market up… and back down. I recovered from the low’s of 2021, but have not seen the high’s of February '21 since.

With the benefit of hindsight, it’s easy to see the extreme valuations, and how obvious it was I should have trimmed/sold more near the top. As good as 2020 was, it also ingrained some very bad habits.

Through that experience I learned to trade options, first as a potential hedging strategy, then as a supplement to my long term investments. This added both tools to the toolbox, and also gave me an outlet for the “need to do something”, while leaving my long term investments intact to compound over time.

Until last weeks sell-off, I’d been able to tread water with an average year (roughly +10%) despite having huge drawdowns in many of my larger holdings; including $MGNI from the $60’s to under $20. After last week, I’ve dropped to a slightly negative return on the year.

Rotating back to index’s in February would have paid off much more in the short term, but I believe staying the course with my conviction holdings and learning a new skill (options) will benefit me more in the long run.

Outlook for 2022?

Now the million dollar question… What’s in store for 2022?

I think we’ve already seen some of it:

  • Multiple contraction
  • Inflation
  • Tighter monetary policy
  • Interest rate hikes
  • Return to work
  • Return to travel
  • Increase in fossil fuel demand

So what does it all mean for the market?

We’ve already seen multiple contraction in small/mid cap names, I think we see a similar contraction in larger cap names as well; either due to lower prices or higher revenue’s. We got a big taste of that last week.

Is inflation transitory? Some of it is, caused by lack of workforce participation and other supply chain issues. Some of it is here to stay, due to higher wages and fuel costs.

Tighter monetary policy? Whether you believe in the underlying companies or not, there is no doubt the run up in speculative assets has been due to the unprecedented liquidity in the market. All that “free” money has to go somewhere, along with growth stocks a lot of it flowed into crypto, NFT’s, and meme stocks. Less liquidity will likely see a correction in these type’s of assets.

Rate hikes are going to make the cost of capital more expensive, whether that’s funding a new business, buying a new home, or servicing existing debt. With home price’s at record highs, interest rate hikes could dampen home sales (although there might be a rush before the rate hikes).

Return to work has already started, there are many positions that won’t ever go back, but in general we should see more face to face interactions. How is that going to affect WFH stocks next year? But more importantly, what stocks will benefit?

Return to travel has picked up as well, but we are no where near peak travel. With each Covid variant we will continue to get volatility in the sector. Who’s going to benefit?

Despite the popular theme of ridding the world of fossil fuel, it’s not going anywhere, and demand will only pick up in 2022. Without fossil fuel you would be naked, hungry, and afraid. Work from the office, travel, and current administration policies will only increase demand and reduce supply in 2022.

The Plan for 2022

I expect to see more pain in the short term, but believe patience will pay over the long haul.

I’m re-evaluating my positions to be very selective in holding companies who are not profitable. Especially small & mid Cap companies.

I’ll be looking to add to my growth companies as their multiples contract. Revenue growth and profitability will be rewarded… eventually.

I’m not going to overthink my “market disruptor” positions, and will accept they could remain beaten down for the majority of 2022. This includes companies such as $NNOX & $LMND.

I will try and catch the prevailing trends with my allocation for trading.

Some noteworthy trends I’ll be watching:

Travel: I have a position in $ABNB that I expect to do well, and I could see $MAR & $CCL catching bids in 2022 among others.

Advertising: As supply chain issues resolve, and travel opens up, I expect advertising to pick up with it. Even if the economy is suppressed in 2022 due to inflation & interest rates, if businesses have merchandise, they will be vying to sell it to you. $TTD, $MGNI, $ROKU, $ATY, $CTV, $ZMDTF, $EGLX, $PUBM, $APPS and many more should do well.
  • According to the WSJ today 12/6/21, global advertising will increase by 22.5% to $763.2 billion this year (excluding political ad spend). That’s up from a 19.2% expected growth rate in June, and only 12% expected last December. The growth rate is accelerating faster than expected.

Fossil Fuels: I’ve already traded $OKE & $RRC this fall for natural gas & propane. I think refiners could get a boost in 2022. $XOM & $PSX are solid options to keep an eye on.

An interest rate increase may bring banks back into the spotlight. I’m leaning more towards staying with alternative investments in this area such as Fin Tech names $SQ, $SOFI, & $UPST for now, but banks should do well.

I’ll be staying away from housing and work from home names such as $ZM, $UPWK, $FVRR, $DOCU etc. for now. Although they may all be great long term investments, I could see some short term pain in 2022. I’ll also be cautious adding anything with a high sales multiple like $NET & $SNOW.

Summary

In short, I don’t expect to make any wholesale style changes like I did in 2020 unless something fundamentally changes in my life (I lose the time I have available now to dedicate to trading/investing).

The market is likely to do what is least expected. Everyone expected a Christmas rally, and then a pullback in early 2022. So naturally we got an early pullback instead of a rally. We are now hearing everyone scream the crash is here, and it’s going to get much worse. Maybe… or maybe we rally instead. No one really knows for sure.

Traders are sitting on the sidelines looking for market direction, young investors are dollar cost averaging into great companies, and many long term investors are just sitting tight knowing over time the market will recover.

I expect to see more red days ahead, but I know I’m not smart enough to time the market (especially with how it’s been acting in 2021). Maybe the downside of 2022 is getting priced in as we speak, and we will continue our bull run, or maybe we are in for another 35% correction (I’ve been through 2 in 18 months, and honestly getting close again). Either way, I’m investing in companies I believe in long term, and I’m going to do my best to continue holding them through the volatility until the thesis changes.
And the thesis will change on some of them. I’ll lose money on some and take profits on others. It’s the nature of the game.

If you can weather the volatility, I still believe growth is the best long term strategy, but there is something to be said for having those stable slow & steady growers in your portfolio as well. There may come a time where I decide to add more of them back into mine. For now, I’m going to ride this out like I have the other corrections, and continue to position myself for what I believe to be winners in 2022 and beyond.

You can find the full newsletter here: "Stock Squawk: Preparing for 2022"

I look forward to hearing what you guy's have planned for 2022 in the comments. Where do you think we're going? How are you positioning? 👇

🦜
post mediapost media
Some really great thoughts here Parrot! This current pullback/correction/whatever has made me think about if being so aggressively into growth stocks is really the right thing for me. For now, I will be patient, but going into 2022 I will start slowly going back into some ETFs and index funds to get some stability back. And then maybe do some crypto shorting (like your options), to “do something fun”.
Thanks for always inspiring. It’s definitely a fun “hobby” we have 😊
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If you caught my post on Innovid Monday, here's an updated interview with the CEO.

More color on what they do, and how they fit between SSP & DSP players. The more I learn about this company, the more excited I become.

As a benefit, they've performed pretty well the last couple of days as the rest of the industry has sold off.


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Innovid $IACB $CTV

Re-sharing this memo from June. SPAC $IACB is voting on their merger with Innovid (soon to be $CTV) today. So I thought it was a good time for a quick update.

Innovid posted 3Q earnings on 11/18/21:

Revenue: $64.3 million, up 41% YoY; driven by 65% growth in CTV revenue

Adj. EBITDA: $3.7 million, up 201% YoY; a 6% Adj. EBITDA margin

Newsletter out later today, but wanted you guys to get the scoop 😊

Added on todays dip... 🦜
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