The digital out-of-home (OOH) advertising industry was one of the worst-hit industries during the Covid-19 pandemic. However, with the increased vaccine distributions, more and more people are stepping out of home, which is expected to help this industry revive over the coming months.
ALFI Inc (ALF, Financial) is a recently listed advertising technology company within the digital OOH domain that offers an artificial intelligence (AI) based enterprise software as a service (SaaS) solution. The company's stock lost value upon listing, but in my view, its technology appears to be quite robust, making an a compelling pick for technology growth investors.
Business model
Advertising has transformed beyond static displays and now can be extended to dynamic, immersive experiences through the use of technologies such as augmented reality, blockchain, machine learning and haptics.
Alfi's technology delivers relevant content to customers by analyzing the user's demographics, psychographics and geolocation. The technology utilizes computer vision powered by a proprietary machine-learning algorithm that senses human behavior and provides customized content with AI and smart technology allowing it to detect user demographics and provide relevant, targeted ads tailored to individual users.
Big data has become one of the most important requirements in the digital OOH industry and Alfi's data-rich reporting functionality ensures that marketers have access to information regarding the taste and preferences of consumers and also the view counts of ads. As soon as a consumer appears in front of an Alfi-enabled device, the technology searches in its data of advertisements to serve up the most relevant content base on the criteria determined by the advertiser, and this entire process is completed in a matter of milliseconds. The company was recently in the news for being hired by NEOOH, one of Brazil's largest digital signage players to deploy its platform solution on digital screens located in airports across Brazil, starting with the Sao Paolo airport. This pilot could eventually result in a significantly larger order which could provide a huge boost to the company's business.
Alfi also offers a hardware product acting as an enabler for the customer experience, which costs less than $100 per digital screen and has the capability to generate more than $1,000 per month per device in revenue, indicating a huge margin potential. The company's platform remains GDPR (General Data Protection Regulation) compliant and does not use any cookies or store personal data and facial images, hence keeping the consumer privacy intact.
The Alfi triple lift
The company engaged itself in many case studies and trials in the process of validating its products and concept and one among those is the Alfi triple lift. As a part of this trial, the management installed 100 tablets in taxis and advertised close to 30 different brands for a period of around 30 days.
The results that Alfi witnessed were outstanding as its tablets were able to drive close to 12.5 million impressions. Even at this small scale, the model had the potential to generate close to $1 million in revenues within 100 days. The best part of Alfi-enabled devices was that they recorded an impression only when a user was in front of the screen, thereby enabling advertisers to have access to concrete and authentic data that can be used for their brand evolution.
The company claims to have charged a CPM (cost per mille) rate of $7.50, which is significantly lower than the industry average of $21 and managed to attain an impressive clickthrough rate of 10%. To make this model scalable, the Alfi management is looking to do a revenue share with taxi drivers and give them 10% of the revenues generated from Alfi screens installed in their taxis. This strategy has great potential to drive revenue since this encourages the drivers to have the Alfi tablets placed in their cabs and help widen the scale of the company. Most recently, Alfi expanded the roll-out of its tablets with the Rideshares community in Miami and 10 other American cities with the latest version 2.0 of its software. It is worth highlighting that the company's tablets are now present across cabs in the UK, Northern Ireland, Miami, and other American cities, and the management intends to roll out another 10,000 new tablets in the next phase as per their press release. This could result in a strong revenue upside in 2022.
Valuation
In May 2021, Alfi announced the closing of its initial public offering at an exercise price of $4.15 per share. As we can see in the above chart, the company's stock opened below $3 but has managed to climb back close to the IPO price.
From a macro-economic point of view, the research by PQ Media indicates that the digital OOH industry accounted for 28.3% of all out-of-home ads in 2019, and this is predicted to rise to 38.3% by 2023.
Alfi's technology is well-positioned to gain from this momentum. With the economic recovery in progress, I believe that marketers are expected to start allotting higher budgets for digital OOH advertising and there would be plenty of opportunities for Alfi to grow.
Disclosure: No positions.
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