Paradigm Capital Markets analyst Daniel Rosenberg is in sync with Sabio (Sabio Stock Quote, Chart, News, Analysts, Financials TSXV:SBIO), initiating coverage on Friday with a “Buy” rating and target price of C$3.00/share for a projected return of 71 per cent.
Founded in 2015 and based in Los Angeles, Sabio provides digital advertising campaigns and services as well as rich analytics for brand marketers and agencies, with a particular focus on the Connected TV (CTV) market, one of the fastest-growing segments within digital advertising.
The CTV market is part of the overall shift in the advertising industry toward digital distribution, with digital ad spending in the United States reaching $191.1 billion (all report figures in US dollars except where noted otherwise) in 2021, a 25.5 per cent year-over-year increase over the $152.3 billion reported in 2020, with a projection of reaching $278.5 billion by 2024.
Within that landscape, CTV is the fastest-growing segment, with an expectation of market growth reaching $27 billion by 2025 on account of the rapidly increasing number of cord cutting consumers, along with marketers developing a greater understanding of CTV’s targeting capabilities, with 81 per cent of respondents to an Interactive Advertising Bureau study noting target efficiency as a reason companies are moving money away from linear TV budget and reallocating the funds the over-the-top (OTT) and CTV budgets.
Manufacturers are seeing the change as well. Rosenberg pointed to smart TV manufacturer Vizio who has noted that legacy linear TV viewing has dropped to approximately one-third of overall viewership compared to 60 per cent just two years ago.
A number of notable content publishers Sabio has access to have deployed CTV in their broadcast strategy to date, including CNN, ESPN, the Food Network, MTV, National Geographic, NBC, the National Football League, Telemundo, TLC, TMZ, the USA Network and VH-1.
With the CTV marketplace still in development, Rosenberg believes Sabio, which has around 70 full-time employees and seven contractors in Canada, the United States and India, has an opportunity to establish itself as a leader in the space.
“While other large AdTech companies offer CTV solutions, they have, for the most part, built or acquired mobile and omnichannel-based technologies,” Rosenberg said. “Sabio is differentiated, having since its inception focused and specialized in CTV. This has led to leading capabilities within the fastest-growing segment of digital advertising.”
Sabio’s campaigns work through its analytics SaaS platform, App Science, which provides agencies and brands with actionable insights on consumer behaviour over CTV, OTT and mobile ad spending throughout a campaign, with its predictive analytics using machine learning to produce insights that provide significant value to brands including identifying favourite apps, locations visited and household demographics.
Rosenberg said the company is starting to monetize App Science, with high advertising yields from effective targeting helping Sabio secure agreements with significant partners to this point in time.
“While the company is still in the early days of commercializing and monetizing its analytics platform, we see strong potential for App Science to grow into a substantial part of the overall business,” Rosenberg said.
“The platform is designed as a self-service product that allows advertisers to gain analytics around campaigns. It also has the potential to be leveraged through partnerships with major media providers or television manufacturers to help them better understand TV viewership.”
Rosenberg foresees fairly consistent growth for Sabio over the next two years, projecting revenue at $19.5 million for an increase of 47.8 per cent over the $13.2 million in revenue reported in 2020. Looking ahead to 2022, Rosenberg forecasts another jump to $27.9 million, which would mark a year-over-year increase of 43.1 per cent.
Meanwhile, Rosenberg foresees the company’s gross margin hitting a similar ramp in pure dollars, projecting growth from $7.9 million (59.8 per cent) in 2020 to $11.8 million (60.5 per cent) in 2021, with another jump to $16.7 million in 2022, with the margin itself being 59.8 per cent.
2022 is when Rosenberg projects the company’s EBITDA will turn positive at $1.1 million after projecting a loss of $300,000 in 2021.
Rosenberg believes Sabio has an opportunity to assert itself within the industry by providing media companies with audience measurement tools and possibly partner with TV manufacturers to enable them to better monetize ad inventory. The model is similar to that of Nielsen, which had its accreditation suspended by the Media Rating Council after underreporting COVID-19 viewership and costing TV networks between $468 million and $2.8 billion in ad revenue, giving Sabio an opening to step into a TV analytics market that Rosenberg believes could be a $4.2 billion market opportunity by 2023.
“We believe Sabio has a leading offering within CTV powered by mobile data as the industry is still in the early days of monetization with most other AdTech providers focusing on mobile and omnichannel solutions,” Rosenberg said.
Disclosure: Sabio is an annual sponsor of Cantech Letter.
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