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Is It Time to Invest in the Advertising Rally?

These 3 advertising companies appear to have strong growth potential

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Jun 08, 2021
Summary
  • Advertising as an industry has witnessed a strong rally in the past months
  • The rally has been driven by increased ad spends in the post-Covid recovery
  • Apart from traditional advertising companies, ad-tech players are also witnessing growth given the rapid product adoption
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Many advertising companies have been witnessing a strong rally over the past few months with corporate advertising spending picking up and the general economic recovery in the aftermath of the Covid-19 pandemic.

The rally is not restricted to traditional advertising giants like WPP (WPP), Omnicom (OMC) and Publicis Groupe (

XPAR:PUB, Financial) (OTCPK:PUBGY). There are also many fast-growing ad-tech players like Criteo (CRTO, Financial), which operate using emerging technologies that are being rapidly integrated into day-to-day advertising activity. Below are three of my favorite advertising companies that I believe could be good investments in the advertising rally.

Criteo

Headquartered in France, Criteo (

CRTO, Financial) is a leading global player in the e-commerce marketing sector. The company has heavily benefitted from the rising e-commerce adoption during the pandemic period, which is why its stock price has also risen immensely.

Criteo enables brands' and retailers' growth by providing marketing and monetization services through activating commerce data with artificial intelligence (AI) technology, reaching consumers on an extensive scale across all stages of the consumer journey and generating advertising revenues from consumer brands for large retailers.

It is often perceived as an ads retargeting company that has difficulty thriving as a viable business under the current environment. However, the company has demonstrated through both its revenue sources and its product roadmap that it is on a path to become a full-stack e-commerce advertising solution provider.

Criteo reported a strong performance in the first quarter of 2021 and exceeded its quarterly guidance, adding over 120 net new live clients. Solid performance of retargeting, driven by Criteo’s retail clients, the stellar performance of Retail Media and continued growth of its Audience Targeting and Omnichannel solutions offset the Covid-19 pandemic impact largely with respect to its travel clients.

Moreover, the company recently unveiled its new branding, including a new logo, visual identity and brand positioning, "The Future is Wide Open." The rebrand marks Criteo’s commitment to supporting a fair and open internet that allows discovery, innovation and choice. Overall, by providing a turnkey solution to its customers, which involves creating personalized ads, serving the ads and leveraging big data for effective targeting, Criteo has a fairly unique approach to the ad-tech business.

Publicis Groupe

Publicis Groupe (

XPAR:PUB, Financial) (OTCPK:PUBGY) is the third largest communications company in the world, a leader in marketing, communication and digital business transformation. It has witnessed a solid momentum in its stock price over the past months.

The company is organized into four Solutions Hubs for simple connectivity and integration: Publicis Communications, Publicis Media, Publicis Sapient and Publicis Health. In this model, all agency brands continue to exist and share a working backbone, which provides them with the power and expertise of all the Solution Hubs combined to deliver the scale needed to compete and win in a data-led, digital-first world.

Despite the pandemic, the company delivered a strong performance in 2020 and continued with this momentum with solid organic growth of 2.8% in Q1 2021. Some of the biggest drivers of the company's growth were L’Oréal's (

XPAR:OR, Financial) media business in China, AB InBev’s (XBRU:ABI, Financial) data business, Toyota’s (TSE:7203) entire advertising portfolio in Australia, Unilever (LSE:ULVR, Financial) Shopper Marketing and Samsung (XKRX:005930) media in the U.S.

Apart from this, Publicis also announced the integration of Indigo Consulting’s digital marketing teams with Publicis Worldwide, thereby creating a 300-member agency capable of providing the entire suite of brand-building communication services from strategy to creative across mainline, digital and social, with data at the center. During the pandemic crises, the company fully mobilized to accompany its clients in rethinking and immediately adapting their communication campaigns to this new situation.

Alfi Inc

I have covered Alfi’s (

ALF, Financial) developments in the past and I would still rate it one of the most under-appreciated ad-tech gems. After its recent public issuance and its listing on the NASDAQ, the company has provided a string of updates related to ramping up its operations. \

In terms of its core business, Alfi engages in creating interactive digital out-of-home advertising experiences by utilizing artificial intelligence and computer vision to better serve ads to people. The company’s proprietary algorithm understands small facial cues and perceptual details that make potential customers a good candidate for a particular product.

The main drivers of growth come from interactive tablets installed in rideshares and the installation of its software in digital signages at public places such as airports, railway stations and malls. The company offers its AI-based solution as an enterprise software on a subscription model for digital out-of-home (DOOH) signage providers.

Its first big breakthrough was onboarding NEOOH, Brazil’s largest OOH player for installing its software on NEOOH signages at Sao Paolo airport. The company continues to pump up its growth strategy with new developments like rolling out the AI-enabled tablets in Miami Rideshares as well as in Value Cabs, Northern Ireland’s number one taxi and chauffeur-drive company operating in Belfast.

It recently announced rollouts at nine different kiosks located within Belfast International Airport, which have a revenue generation potential of more than $5 million in the words of the management. These aggressive expansion activities are expected to pay off in the coming quarters. Once the company starts reporting strong revenue growth, I believe that its valuation is expected to bump up significantly.

Final thoughts

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We can see a comparative analysis of the enterprise-value-to-revenue ratios of Criteo and Publicis Groupe in the above chart. Interestingly, both these companies are trading well below the 2.0 mark, and what comes as a big surprise is the fact that Criteo is trading at barely 1.09 despite being an ad-tech player in the highly lucrative e-commerce industry.

With respect to Alfi, the company was listed earlier this year as a zero-revenue player, which is why it cannot appear on the above chart. The company is trading at close to $3.50, well below its listing price, but the recent roll-outs and contract signings indicate the potential for positive revenue at the end of 2021 for Alfi as well.

Overall, I believe the stocks of each of these three companies have plenty of steam to grow further despite the recent rally and appear to be compelling investment opportunities in the advertising domain.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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