cb15be9f-e24f-4cf4-94d0-d62736934ca2_Telaria-2019-Analysis.pdf
Telaria 2019 Analysis
Overview of Connected TV Advertising:
Connected TV advertising is in my top three favorite tech trends for near-term gains, as discussed in the PDF that covers Roku and The Trade Desk. This is a massive opportunity that is occurring right now and should be given close attention.
Connected TV takes the best part of mobile (audience data) and combines it with the best part of television (brand messaging). This is a very important trend for brand dollars that should not be dismissed as “eyeballs migrating to OTT.”
The opportunity is much larger than represented by the number of people who are cutting the cord as
Connected TV ads are not merely a 1:1 ratio. Rather, these ads represent a higher ratio as the demand (advertisers) consider the medium more valuable. There is evidence that Connected TV is closer to a 2:1 and up to a 5:1 ratio in terms of its value to advertisers in terms of the rates they are willing to pay.
It may be hard for investors to imagine that some advertisers don’t like working with Google, Facebook and mobile or desktop, in general. This is a very real issue in the advertising world. Many big brands are not convinced that these mediums offer true, lasting impressions. They also do not trust the measurement offered as it’s behind a blackbox that they have no control over. Nielson offers an audience measurement system that many brands are accustomed to for traditional television.
Below is an illustration of television holding its own against mobile. Keep in mind, this is despite 5 billion mobile devices entering the market over the past decade compared to 2 billion television sets. The 34% who have held onto their television budgets are the advertisers this PDF is referring to, plus any of the remaining advertisers who are frustrated with a lack of measurement and click fraud on the other mediums.
Connected TV ads already see a $20 average revenue per user, according to Roku’s earnings. This is 200% more than social ads, such as Twitter, at $9 ARPU. It took Facebook over a decade to surpass $20 per user while we can trace the relevant emergence of Connected TV ads to late 2017/early 2018. You’ll also see below that Telaria’s CPMs on Connected TV ads are nearly 5x higher than average CPMs and have surpassed Facebook’s CPMs at the height of its dominance (and even with all of that Facebook data).
For quick reference, here are some CTV ad statistics referenced in the August PDF which related to the overall size of the opportunity:
Mobile’s share of programmatic video will peak in 2020 at 53.9%. By 2021, mobile’s share will dip below the 50% mark due to the rise of CTV ads.
To illustrate the growth of CTV, SpotX saw the share of impressions it serves through connected TV increase from 15% in Q1 2018 to 33% in Q1 2019. Innovid also saw CTV ads jump from 13% to 27% and Extreme Reach reported an increase from 15% to 44% over the time span of a year. Telaria reported triple digit growth in revenue from Connected TV ads at 133% year-over-year.
To date, CTV ads account for $8.2 billion of the $70 billion spent on global TV advertising in 2018. Data is driving personalized ads with data-driven video increasing 79% in 2018. Customized ads combining localization and personalization can generate over 12,000 unique versions with the largest customized ad having over 200,000 customized versions. This provides an engagement lift of over 78%.
According to CMO.com, an eye-tracking survey revealed that TV commands 2x the active viewing attention compared to YouTube and 15x the active viewing attention of Facebook. Completion rates are also higher on connected TV at 95% compared to 75% on desktop and 72% on mobile. Brands are convinced they should integrate with digital audience data with 28% saying they have already done so, but 68% plan to do so by September 2019.
Telaria Overview
Telaria is a volatile small-cap stock and even solid earnings has not helped to stabilize the price. Revenue was up 47% with the CTV business growing 133% year-over-year. Gross profit of $14.7 million was up 31% year-overyear in the last earnings report. The company increased the full year revenue guidance to $68-$72 million, up from $66-70 million.
When comparing Telaria to other connected TV stocks on the market, the two differentiators are that it’s headquartered in Israel, which may position it better for global inventory. The opportunity for CTV ads is global, and this could be a major positive for Telaria.
The second differentiator is that Telaria is primarily a sell-side or publisher platform – rather than a demand-side platform. For comparison purposes, The Trade Desk is a demand-side platform. More on this below.
Telaria is not a pure play but they are focused enough on connected TV to almost meet the criteria. They also sell mobile and desktop inventory, which is not as interesting to me in the current environment as these are not hyper growth categories.
Telaria Fundamentals
The most important key metric to focus on in Telaria’s report is CPMs, or the cost per 1,000 impressions, which grew from $11.58 to $15.41 year-over-year. These are very impressive CPMs, although not entirely surprising as in my previous report, I have stressed the importance of CTV ads for brand advertisers.
Brands who have the big advertising budgets, such as Coca-Cola, Geico, McDonalds, etcetera, are willing to pay much more for television. Compare this to Facebook’s 2018 CPMs which are driven by hordes of data and were considered “skyrocketing” when they hit $11 CPM at Facebook’s 2-billion user peak in 2017-2019.
Due to Connected TV ads and high CPMs, Telaria was able to report $2 million over the $15.5-16.5 expected at $18.2 million in the last quarter. The company reported adjusted EBITDA of $1 million with EPS of -$0.03.
Full year guidance was raised from $66-$72 million to $68-$72 million with Q3 2019 guidance at $16-$17 million.
Notably, there is no long-term debt on the balance sheet and the company has $58 million in cash.
Valuation is another area where Telaria checks quite a few boxes. Roku and The Trade Desk can wildly fluctuate, but at time of writing, forward price to sales is 14 for both companies while Telaria is at 4.8.
In the recent earnings report, leadership stated, “This quarter, we also advanced our technology leadership by becoming both the first video platform to provide Nielsen verified audiences to programmatic CTV buyers and by launching our addressable audience targeting solution.”
This is intriguing as traditional television buyers are impartial towards Nielson for measurement and verified audience purposes. The majority of the television advertising industry is tied to Nielson data.
The company also expanded the addressable market feature, although addressable is a common offering among
ad companies these days. The more important announcement is Nielson as the brands who are buying Connected TV inventory rely on Nielson for broadcast and linear television ads.
As you’ll see in the Risks section below, executives at Telaria come from Nielson, which is an interesting advantage for supply-side partnerships.
Sell Side Vs. Demand Side
Put simply, the sell-side works with publishers (inventory or supply). For Connected TV, the publishers are the apps where you view content: Hulu, HBO, Netflix, Vudu, ESPN, etcetera. Sell-side platforms have direct relationships with publishers.
The demand-side works with advertisers (demand). This is companies like Expedia, Coca-Cola, Geico, McDonalds, T-Mobile, Verizon, BMW, Mercedes, and sometimes other publishers who want to advertise their services (ESPN could buy advertising on Vudu, for instance).
Programmatic is real-time bidding that removes salespeople. Ad companies often talk up this piece, but in reality, just about all ad-tech is programmatic and offers real-time bidding these days (and has been since about 2012-2014 when ad-tech underwent this evolution for mobile and desktop ads). This is not a differentiator. It does help to facilitate more ad placements and some brands who were adamantly against mobile or desktop will use programmatic for the first time with Connected TV.
There are strengths to the sell-side approach. The first is that switching costs are higher for publishers than for advertisers as publishers have to install software into their applications to serve the ads. They’ll typically limit the number of sell-side platforms they work with as it can create app bloat to broker with too many sell-side platforms (SSPs).
Telaria advertisers an impressive client list, including Sling, Hulu, PlutoTV, A&E and the Discovery Channel. One thing to note: ad-tech companies can integrate via server to server rather than through software. The latter is a much stronger relationship. Telaria, and other ad-tech companies, typically don’t disclose if the client list is a direct software installation or a server-to-server integration. In the case of a server to server integration, the switching costs are not high and the relationship is similar to DSPs who have to consistently outperform in order to win the business.
For example, Telaria may have a direct relationship with Warner Brothers but not with Hulu (who likely uses more than one SSP).
To contrast, the demand-side is almost never loyal and almost always has low switching costs. Often, advertisers will run campaign tests across as many as twenty DSPs and will run the campaign on those who perform the best. This is the downside to programmatic and server-to-server integrations across ad exchanges. Even when the SSP is a server-to-server integration, they are not as aggressive as advertisers in switching.
It requires very little time or energy to run these tests. Some advertisers will repeat this process frequently before every campaign, going with only the DSP who is performing well in that month. DSPs will differentiate among themselves with features such as omni-channel advertising to become a one-stop shop for campaigns across multiple mediums and device types.
Of course, as the world is well aware at this point, data is king. The publisher will be paid more if the advertiser can target the audience with more precision. Therefore, the sell-side has an advantage because the direct relationship with the publisher provides the best data. To illustrate, Roku is a publisher of the Roku Channel and a platform owner, as well. There is a lot of data here from these sources, and therefore, the average revenue per user is very attractive at the $20 ARPU.
Demand-side platforms, such as The Trade Desk, rely on the identifier for advertisers (IDFA) from Apple and their own Universal Ad ID. This helps to track the user for omni-channel advertising and retargeting, such as when a person switches from watching OTT apps to browsing on mobile. However, the playing field is equal for IDFA across all advertisers while The Trade Desk is attempting to have an advantage with their own proprietary Ad ID.
When comparing apples to apples, the sell-side is better positioned as they hold the data and the inventory in a space that is more limited in inventory than in advertisers. The relationship that is created by installing software holds more weight than the relationship that is dependent on monthly pricing.
You can see evidence of the value of SSPs historically in the mobile ecosystem. The larger players acquired sellside platforms, such as Google’s acquisition of AdMob for $750 million and Twitter’s acquisition of MoPub for $350 million. These ad companies have little reason to acquire a DSP as this is where they already excel and is easy enough to build, if you have the data. Similarly, Facebook acquired LiveRail for $500 million for its premium video publishers.
Risks
As noted in the supply-side discussion, ad-tech companies don’t disclose if their client list is a direct software installation or a server-to-server integration. The impressive client list that Telaria discloses, including Sling, Hulu, PlutoTV, A&E and the Discovery Channel, may be brokered to Telaria through server-to-server integrations rather than directly served through ad software. This is a risk because another SSP can easily establish a serverto-server relationship through a web of ad exchanges. Direct software is a more protected relationship.
A primary risk is that Telaria does not have a straight path behind ownership and management. We do not have a passionate-founder type like Anthony Wood or Jeff Green at the helm. I’ll outline what I’ve been able to gather and add some information as to my experience with ad-tech companies during that era.
Founded in 2012, Telaria’s former company, Taptica, was a mobile user acquisition company. Interesting enough, Neilson EVP Itzhak Fisher was an early investor, which may be why we see Nielson recently partnering with the company on audience measurement. By April of 2014, Taptica wasn’t doing well and sold a purchase option for a $1.5 million line of credit. By October 2014, Marimedia purchased Taptica for $13.6 million.
By May of 2015, the company issued a profit warning and Marimedia changed its name to Taptica. The company then went through a series of acquisitions, including Tremor Video’s demand-side platform for $50 million. There were mergers in 2018 and 2019, resulting in Taptica renaming itself to Tremor International.
Notably, Hagai Tal, the CEO had to step down due to concealing material facts during a sale in 2011. The former CEO of Matomy Media, Ofer Druker, then took over as CEO of Taptic and Termor International. Mark Zagorski has been CEO of Taptica since 2017, and has connects to Nielson, having served as CEO of a Nielson company named eXelate, and EVP of Nielson’s Marketing Cloud.
Needless to say, the history is complicated. Taptica and Telaria have decent client lists, which helps. This was an era which was particularly hard on ad companies. Part of the anti-trust issues we see with Google and Facebook is that they forced many ad-tech companies out of business.
There is always a lot of risk when investing in an ad-tech company, and I pointed this out with my analysis on The Trade Desk. There is endless competition as there is no intellectual property to speak of. Advertisers are looking for the best addressable media at the best price, and publishers are looking for the highest returns. Whoever is capable of climbing to the top of the pile (of the 2,000 ad-tech companies on the market) usually isn’t there for very long (1-3 years) The only exceptions are if you have proprietary first-party data or other direct relationships.
Technical Analysis
By Knox Ridley
Telaria (TLRA) has had a rather complex structure ever since it began trading in 2013 under Taptica/Tremor. In fact, its all-time high occurred on its IPO around $11.09. Since then, its structure has been a complex, overlapping, corrective (A,B,C) structure up until today.
In other words, it bottomed in early 2016 at $1.29, and though it’s been in an uptrend, that uptrend has been characterized by a series of 3-wave corrective moves. This would put us in the final C-Wave push of this uptrend. So, after a massive move from $1.29 to $10.66, the structure of this uptrend seems to be part of a larger degree corrective structure, which is highlighted by the blue A,B,C.
That being said, the structure of TLRA is not as reliable as the current trend currently in place. Time and time again when I’ve seen these larger-degree, corrective moves up, over time, and with some additional momentum, morph into a larger degree 5-wave structure, which I never want to miss out on.
Or, I’ve seen them morph into an even more complex structure or extend to much higher levels. This can be especially true when analyzing the charts of small to micro-cap stocks that are thinly traded. In short, seeing a complex corrective structure in a small cap stock, I take this as the market not really sure what to think of TLRA at the moment.
As you can see in the chart, TLRA reached the 100% extension of the A wave (A=C in blue), and then turned down hard. It found support at the 23.6% retrace level, which coincides with the 200-day moving average. I outlined this region in yellow, and would place a stop just below $5.75. Below this region and the likelihood of closing the massive gap around $3.70 becomes elevated. This will provide entry with a rather tight stop – low risk with high reward.
Furthermore, the MACD has found a base, and is now turning up, while we go into earnings.This is a sign that momentum is shifting back to the upside. Also, note the volume has elevated to new heights, which is signaling increased interest, which has been heavily tilted to the long side. With volume lowering into this pullback, and the stock resting over the 200-day, it appears that TLRA is in a wait and see mode with their earnings on deck.