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Ishan Majumdar
Ishan Majumdar
Articles (131)  | Author's Website |

Kubient: High-Growth Ad-Tech Opportunity

The recently listed advertising technology player has a strong set of offerings

November 18, 2020 | About:

Kubient Inc. (NASDAQ:KBNT) is a promising advertising technology company that was listed after a successful initial public offering in August. The company has disappointed its investors after a discounted listing amidst the global economic turmoil and fell further over the past few months after mediocre results for the second quarter of 2020. However, it is worth highlighting that the company has a solid cloud-based platform technology to onboard different players within the digital advertising ecosystem and also caters to a strong macro pertaining to digital ad fraud. At its current price of $2.64 per share, the company appears to be a good bottom fishing opportunity for microcap investors.

Company overview

Kubient is a New York-based ad-tech player with two fundamental offerings – an Audience Cloud platform for real-time trading of programmatic advertising and the Kubiant Artificial Intelligence system (KAI), its proprietary machine learning technology that ensures real-time prevention of digital ad fraud.

The company's cloud platform allows advertisers and publishers to efficiently bid on and auction off ad space online through its own artificial intelligence-based algorithm. KAI acts as a complimentary fraud prevention tool and works as a pre-bid mechanism to ensure fraud prevention before an advertiser spends his money. The goal of Kubient as an organization is to help both advertisers as well as publishers achieve maximum advertising efficiency as a result of a fully optimized digital advertising marketplace.

Evolution of advertising technology and industry macro

The advertising industry has undergone a radical transformation after the rise of web-based marketing and social media. Improved ad targeting through online channels has prompted companies to spend billions of dollars to reach their desired audience. In fact, eMarketer estimates indicate the global digital advertising expenditure in 2019 was over $325 billion and surpassed traditional advertising expenditure for the first time in the history of the advertising industry. This is forecasted to grow at over 13% per annum.

This continuously evolving digital advertising ecosystem has led to the emergence of ad-tech companies like Kubient. One of the key issues in the digital advertising domain, however, is the relative lack of transparency, which has resulted in billions of dollars' worth of ad fraud taking place each year. As per Statista, the value of digital ad fraud was close to $18 billion in 2018 and is expected to rise to as much as $44 billion by 2022. Juniper's research indicates that advertisers lost close to $42 billion in 2019 alone through ad fraud. Despite a market of such staggering proportions, the number of ad-tech companies that are directly addressing the issue is relatively low, giving Kubient a very large playing field.

Kubient's product offerings

Kubient's core offering is its Audience Cloud platform, which is basically a digital marketplace meant for both advertisers and publishers. In this marketplace, both parties can transact openly with each other and buy or sell advertising inventory through its end-to-end real-time bidding interface. This inventory includes mobile ads, desktop ads and digital out-of-home ads in different formats such as video, display, audio and so on.

The company says the Audience Cloud platform is a unified, fully integrated, transparent advertising marketplace with minimal risk of ad fraud as a result of the integration of KAI. KAI is expected to ensure that every single advertising dollar spent is directed toward the relevant campaign with the ad reaching the targeted audience. Given the fact that it is a pre-bid ad fraud solution, management claims it has already shown a visible 32% reduction in ad fraud for its existing clientele.

Both these offerings are meant to inspire the confidence of advertisers and publishers and ensure they start rapidly adopting the company's platform. Kubient also provides them with various data analytics and insights related to ad campaigns to help increase their efficiency and maximize the advertising return on investment.

Final thoughts

Kubient offered 2.5 million shares at $5 per share in its IPO, which was entirely a growth capital-related fundraiser. The company's share price is now down to $2.64, largely due to fluctuating revenue. It is worth highlighting that Kubient delivered a good first-quarter result in 2020 with over $1 million in revenue from clients who beta tested its fraud prevention solution.

Revenue dipped again in the second quarter, which caused the stock to fall. However, management has funds at its disposal not just to improve its product, but also to spend heavily on marketing and add more publishers as well as advertisers to its platform. Given this fact, the company could be an interesting opportunity for microcap investors with a high risk appetite.

Disclosure: No positions.

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About the author:

Ishan Majumdar
I am a qualified Chartered Accountant with a Masters in Management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research (www.baptistaresearch.com) specializing in M&A, corporate advisory, equity research and valuation of listed companies.

I have nearly a decade of experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.

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