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3 Tech Stocks Disrupting the Advertising Industry

Artificial intelligence and big data are upsetting the advertising landscape 

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Mar 16, 2022
Summary
  • The global programmatic advertising market is expected to reach $150 billion by 2023, a 22% annual growth rate, according to data by Market Research Future. 
  • Many growth stocks in the sector are down substantially due to high inflation. 
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The advertising landscape has changed a lot from the days of traditional newspaper and television ads to more modern online ads. According to Forbes, most Americans are exposed to around 4,000 to 10,000 advertisements each day, which is substantial.

As a digital marketing consultant, I have noticed many trends such as personalization and context-based advertising. Consumers tend to respond better to more personalized advertisements, which results in a low cost per click for advertisers. Thus, I will look at three companies that use the power of big data and artificial intelligence to tailor advertising recommendations across the open web. Let’s dive in.

Trade Desk

The Trade Desk Inc. (

TTD, Financial) is a leader in programmatic advertising. The company runs a software-based marketplace which connects digital ad buyers (enterprises) to content publishers (blogs and websites). According to Gartner reviews and my onw analysis, Trade Desk offers a goal-focused approach to media ad buying across display advertising on publisher websites, connected TV and even integration with the popular social media platform TikTok.

The company uses its artificial intelligence engine to optimize the ad spend. The user interface is simple and offers many third-party integrations. In comparison, Alphabet's (

GOOG, Financial) Google ads has a fairly clunky and complex user interface that takes some time to learn.

The love of Trade Desk by its customers is recognized by their super high retention rate of 95%, which the company has managed to maintain over the past eight years.

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The company operates with a high adjusted Ebitda margin of 42%, up from 34% in the prior year, to generate $500 million in adjusted Ebitda.

According to the GF Value Line, which analyzes the stock's historic valuation multiples, past financial performance and future earnings projections, Trade Desk is significantly undervalued currently.

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Outbrain

Outbrain Inc. (

OB, Financial) is a leading native advertising and content recommendation platform. The problem with traditional banner ads on websites is that they are often irrelevant and look like an advertisement. Thus, these tend to result in low engagement and clicks by the user, which means higher costs for the advertiser. However, native advertisements seamlessly embed into relevant content. This results in high engagement, low cost per clock and a high return on investment digital advertising strategy. Premium publishers include CNN, The Washington Post, BBC and Sky News, while their advertisers include leading brands such as Samsung (XKRX:005930, Financial), Nestle (XSWX:NESN, Financial), Honda (HMC, Financial) and many more.

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The company is trading at a low price-sales ratio of 0.59, relative to historic multiples, which is a $600 million market cap on $1 billion in revenue. In regard to valutation, the discounted cash flow model gives a fair value of $12 share. The stock is currently trading at $11 per share, so is undervalued by 11% based on this analysis. Personally, I would like a larger margin of safety with this one.

Taboola

Taboola.com Ltd. (

TBLA, Financial) is a software platform that is used to track reader engagement on websites. In addition, it allows the personalization of websites to each user. The company has partnerships with premium publishers such as NBC, BBC, USA Today and Business Insider.

The company benefits from strong network effects, where the more publishers equals more advertisers, equals more data generated, equals better results for advertisers. This in turn leads to more publishers signing up for the platform.

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Wall Street analysts have an average price target of $11, which represents an upside that is more than double (150%) its current level of $4.39. The company also trades at an adjusted forward earnings multiple of 13.5, which is a 24% discount to the sector median of 17.7.

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Final thoughts

The global programmatic advertising market is expected to continue to grow in the years to come. Advertisers are continuously seeking a lower cost per click and consumers are seeking more personalized and engaging content. These three platforms have the potential to ride the wave of personal and high-performance advertising technology.

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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