Deep Dive Into 12 Selected AdTech Firms

In my last article, I had discussed the general outlook of the AdTech sector and deemed it as a booming industry.

For this article, I will looked at the financials, ratios and margins of 12 selected AdTech firms. 

I will divide it into three sections: revenue, earnings, and free cash flow, and compare their growth rates, ratios, and margins. 

Do note the following:

  • All Information are taken from SeekingAlpha and Roic.oi Website.
  • These are the tickers of the AdTech firms listed - GOOG, FB, ROKU, TTD, APP, APPS, MGNI, PERI, PUBM, EVC, TRMR and ATY. Share price of the counters was based on prices as of 29 March 2022.
  • "Pegged" meant that the past results are calculated based on per share basis using the latest outstanding share count. Only GOOG, FB and EVC are not pegged because their outstanding share count has decreased over 3 years.
  • APPS and EVC has another row based on "Adjusted Revenue". This is because there has been discussion that these 2 companies' revenue is deemed as "gross" figure and not "net" figure. Therefore, this additional row for APPS and EVC re-calculate its revenue by removing the revenue share, or cost of the digital business.
  • "Turnaround" meant that the company managed to turnaround from a negative beginning balance to a positive ending balance for that particular period.
  • "Reduction" meant that the company growth reduced over the particular period.
  • All figures are on per share basis.
  • All of the firms financial year ends on December except for APPS (which is in March). Thus, APPS latest financial figures are trailing twelve months figures.
Nevertheless, as justification to my last article, the industry is indeed booming since (1) all the revenue growth rate over the last 1, 2, and 3 years has been growing (Except for APPS Adjusted Revenue 1 year growth rate), which meant that most of the companies in the list has managed to obtain record revenue in the latest financial year and (2) all the companies in the list managed to obtain positive earnings and free cash flow in the latest financial year.

Revenue
Revenue Per Share, Revenue CAGR Over 3 Years, PS Ratio and Margins for Selected AdTech Firms

When comparing the recent growth rate and the firm's relevant PS Ratio, all selected AdTech firms (save TTD and APPS Adjusted Revenue) appear to be undervalued.

Thus, the following criteria will be used to determine which of them stands out in this category:
  1. Consistently increasing/improving/maintaining their Revenue per share over last 4 years.
  2. Improving/maintaining growth rates over time.
  3. Lower than average PS ratio of 3.9x (Excluding TTD and APPS with Adjusted Revenue) 
The 3 companies that passed all the criteria are PERI, MGNI and EVC (with Adjusted Revenue).

Earnings (EPS)

EPS, EPS CAGR Over 3 Years, PE/PEG and Margins for Selected AdTech Firms

In FY2021, all of the selected AdTech firms made a profit, demonstrating that the sector is booming. However, it is critical to separate the one-hit wonders from the true champions.

As a result, I'll consider the following criteria:
  1. Consistently increasing/improving/maintaining their EPS over last 4 years.
  2. Improving growth rates over time.
  3. PEG<1 or Turnaround
  4. Lower than average PE of 18.3x (Excluding any PE that is more than 25 from the calculation of average PE)
  5. Net Profit Margin above average net margin of 15%
The companies that passed at least 4 of the criteria are:
  • TRMR - Passed all criteria except 1
  • ATY - Passed all criteria except 5
  • GOOG - Passed all criteria except 4
Free Cash Flow (FCF)

FCF Per Share, FCF CAGR Over 3 Years, PFCF Ratio and Margins for Selected Adtech Firms

Similarly, FCF appears to be fantastic for all of the selected AdTech firms, since they all have positive FCF in FY2021. Nonetheless, it is critical to select those individuals who are continuously producing FCF or who are improving their FCF creation.

These are the criteria for selecting the best AdTech companies:
  1. Consistently increasing/improving/maintaining their FCF over last 4 years.
  2. Improving/maintaining growth rates over time.
  3. Lower than average PFCF of 17.9x (Excluding any PFCF that is more than 50 from the calculation of average PFCF)
  4. Net Profit Margin above average net margin of 20.9%
The companies that passed at least 3 of the criteria are:
  • TRMR - Passed all criteria except 1
  • ATY - Passed all criteria except 4
  • FB - Passed all criteria.
  • GOOG - Passed all criteria except 3
All the above looks promising but it seem like FB stands out from the crowd in this category.

Conclusion

In short, with the AdTech industry flourishing, it's critical to go deeper into the industry and try to separate the winners from the potential one-hit wonders.

TRMR and ATY are unique among all the 12 AdTech Firms. Their PS ratio was much lower than the average even though they did not appear to be winners in the revenue segment.

In terms of large/mega caps, GOOG appears to be the current standout.

According to the aforementioned research, TRMR and ATY, as well as GOOG, are performing with improved fundamentals and look to be undervalued.

As of time of writing, I own APPS, EVC and GOOG.

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Appreciate!

Stay tuned for the next write up!

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