AcuityAds gets bullish new $5.50 target at Echelon Capital

In an update to clients on Monday, Goff reiterated his “Buy” rating and lifted his target price from $4.50 to $5.50, saying that demand in the advertising space is gaining momentum.

Earlier this month, AcuityAds, which provides Real-Time Bidding (RTB) solutions for the digital advertising space, announced the launch of its self-service advertising platform illumin, dubbed as the company’s first standalone brand offering “a simple, intuitive user
experience for marketing teams of all sizes and experience,” the company said.

“Following our successful beta program, we are incredibly excited to launch the illumin brand and make this revolutionary platform accessible for advertisers of all sizes,” said Tal Hayek, Co-Founder and CEO of AcuityAds, in a press release. “Illumin is the culmination of years of development and time spent envisioning a better programmatic system that enables advertisers to create highly customizable consumer journeys that increase efficiency and return on advertising investments.”

AcuityAds has been a rocket of a stock in 2020 and is currently up 245 per cent year-to- date. But there’s likely more upside, says Goff, who said in his note that he expects illumin to record “significant marquee wins” in 2021.

“We are encouraged by the platform capabilities and see it offering a sustainable differentiation in the market. Meanwhile, demand for programmatic advertising continues to strengthen with the Company approaching year-over-year growth levels. We are impressed to see that the 20-25 per cent of the business that has declined to probably less than five per cent has been largely offset by new client wins and higher spending by clients adjusting spending levels to the online insurgence around COVID-19,” Goff wrote.

Saying that his forecasts leave upside room for illumin and inorganic growth, Goff estimates AT will generate 2020 revenue and adjusted EBITDA of $103.4 million and $9.8 million, respectively, and 2021 revenue and adjusted EBITDA of $120.1 million and $14.8 million, respectively.

On the M&A and industry consolidation front, Goff sees AcuityAds as an attractive acquisition candidate due to its strong product and service lineup as well as current valuation. Versus its peers, Goff sees AT to be trading at 1.9x his 2020 EV/Sales estimates, 3.4x his 2020 EV/Gross Profit estimates and 19.0x his 2020 EV/EBITDA estimates. This he compares to counterpart The Trade Desk at 35.2x, 40.3x and 147.5x, respectively.

“Looking ahead, we see further market strengthening complemented by traction associated with AT’s new platform moving beyond its beta environment. AT is focused on providing the new platform to Fortune 500 companies where their move to in-house programmatic advertising and content is a recognized trend in the market. This is also a trend where AT may have greater flexibility than the US bellwether The Trade Desk given its close relations with the major advertising agencies,” Goff wrote.

At press time, Goff’s new target of $5.50 represented a projected 12-month return of 18.3 per cent.

Programmatic advertising, once the bleeding edge of the industry, has become a regular part of the business by now.

A recent report from John Glenday of the website The Drum noted how the numbers in the space continue to soar due to the use of data and targeting efficiencies. Citing a comprehensive survey particular to the UK called the “2020 IAB Europe Attitudes to Programmatic study”, he outlined the strides the industry has made since the last annual report.

“New research into programmatic advertising spend has shown revenues grew by 23% in 2019 to top €23bn, with 77% of display and over 50% of video now traded via programmatic methods,” the author reported. “The 2020 IAB Europe Attitudes to Programmatic study was informed by 350 advertisers, publishers, agencies and ad-tech vendors from 31 markets, illuminating several key growth drivers.”

Glenday said advertisers were driven to spend because of better use of data, and “targeting efficiencies” while noting that there is mounting enthusiasm for programmatic offerings. He also noted that the proportion of brands doing the work themselves seemed to be diminishing.

“The recent trend toward in-housing may be in doubt, with the proportion of advertisers embracing the in-house model shrinking from 38 to 20% over the past year. The study also highlights a shift from buy-side toward hybrid models with the proportion of advertisers embracing the latter doubling to 30% in 2020.”

But Glenday said the nascent industry still faces some challenges, mostly to do with perceived transparency issues.

“Supply chain transparency remains the single biggest hindrance to programmatic adoption, with advertisers demanding greater control of inventory and at a lesser cost as well as improved transparency and clarity of fees from partners. Such concerns have already prompted two-thirds of ad tech vendors to invest in a fully transparent business model.”

Underlining Goff’s commentary on the space. Glenday noted that 2019 was a standout year for connected TV.

“Connected television (CTV) stood apart from the pack as a clear winner across all categories despite current investments remaining low, with 60% of agencies and partners committing just 20% of their programmatic budgets to the sector,” he added.