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Many may be familiar with The Trade Desk (NASDAQ:TTD) and PubMatic (PUBM), two popular stocks in the sector. The Trade Desk operates primarily on the demand side by working with companies and their advertising agencies to maximize their return on advertising spend. PubMatic provides services primarily on the supply side of the equation by working with the publishers. Tremor provides platforms for both sides of the transaction and has the DMP to offer clients and potential clients. (See Tremor International, Ltd. stock charts on TipRanks)
I am bullish on TRMR stock.
Changes in the Advertising Market
Cord cutting, the decline of satellite and cable television subscribers, is not just a trend. At this point it is an eventuality. Most Americans under the age of 49 do not have traditional television subscriptions. The numbers continue to decline every year.
This has led the rise of mobile apps and connected television (CTV) which has changed the way advertising agencies conduct business. CTV is essentially any programming that one receives through the internet. If you aren’t watching cable or satellite, then you are probably watching CTV.
Tremor, with its vast data management platform, can capitalize on this with highly targeted, data driven advertising that ad agencies are seeking. CTV is also a critical market for Tremor as it is unaffected by changes in third-party cookie policies or laws. Since Q1 of 2019, Tremor has grown this portion of its business from a paltry $1M to $21M in Q2 of 2021. This represents a significant portion of total revenues and is growing each quarter.
Growth in a Growing Addressable Market
This digital advertising industry is expected to reach $455 billion this year and grow to over $700 billion by 2025, according to independent data included in Tremor’s latest earnings presentation for H1 2021. This huge market is dominated by some major players like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) (GOOG). However, there are then numerous smaller players jockeying for position and growth. Tremor has reported $152M in revenue for the first half of 2021. This is a 105% increase over the same period in 2020.
The company also reports a revenue metric called “contribution ex-TAC,” or contribution less the traffic acquisition costs, or “TAC.” This provides a clearer picture of the revenue and growth which is organic and not simply a result of higher prices that are passed through to clients. By this metric the contribution ex-TAC has risen 126% in the first half of 2021 over 2020 to $137M and $61M, respectively. Bear in mind, however that 2020 business was slowed by the COVID-19 pandemic.
Along with the stellar growth Tremor is also net profitable. This is impressive for a young stock experiencing this level of growth. The company has reported net profits for each quarter of 2021.
Share Price Decline Signals Opportunity
Tremor stock’s share price has recently dipped below $20 per share. This may signal a buying opportunity. Indeed the forward price-to-sales ratio is now below 5x, which is attractive for a company growing revenues at the clip that TRMR is.
Analysts Very Optimistic
Wall Street analysts are extremely bullish on TRMR stock. All five analysts reported by TipRanks have a “buy” rating on the stock. The average Tremor International price target is $29.40. This implies more than 47% upside from the stock’s September 17, 2021 closing price of $19.79. Also, even the lowest analyst target of $26 implies quality near-term upside potential.
Summary on Tremor International
The secular trends in digital advertising are decidedly positive. The move away from traditional mediums and towards video and CTV will only accelerate for advertising agencies. Tremor offers a full stack of offerings for publishers and advertisers alike. Tremor is profitable and growing in this industry. Analysts are extremely high on TRMR stock and the recent pullback below $20 per share may offer an enticing opportunity for investors.
Disclosure: At the time of publication, Bradley Guichard had a position in the securities mentioned in this article.
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