On January 2, TVTechnology.com declared 2019 to be the year of the consumer for connected TV (CTV). And I, for one, think it’s right!
Now, if you’re not familiar with CTV, don’t fret; it’s easy to understand. Connected TV is merely a television that connects to the internet. So, if you have a Smart TV, an Apple TV, a Roku or a PlayStation, you’re already a member of the CTV generation!
The penetration of internet-connected TV devices has only recently become a topic of conversation. According to data provided by the Leichtman Research Group (LRG), the number of US homes with at least one connected TV device increased to 74% in 2018 from 24% in 2010. But despite this incredible growth, advertisers are only just now beginning to understand and appreciate the targeted potential behind CTV-based advertising.
CTV’s growth will be fueled by ads
Most CTV consumers are willing to endure a degree of targeted advertising if it means their out-of-pocket entertainment spending will drop. And advertisers finally realize that unlike their old shotgun approach to traditional TV and print advertising, CTV and the data-driven approach that connected TV affords will allow them to use a more focused, single-shot approach.
Put another way, advertising via CTV when paired with the benefit of analytics and an increased appreciation for consumer data has the potential to produce a better consumer experience for the CTV viewer and higher rates of engagement for the advertiser.
But a data-driven approach that produces a direct-to-consumer advertising model requires a set of skills and technologies that many old-line ad agencies and chief marketing officers lack. So, whether you’re an advertiser needing to buy ad space from a publisher, or a publisher wanting to monetize your available ad space, you need a programmatic platform that facilities the automatic buying and selling of ad space.
Now, for publishers looking to manage and monetize their programmatic video inventory through a single platform, the $220 million sell-side-focused Telaria Inc (NYSE:TLRA) is ready to help. Telaria's programmatic software platform has been built and optimized to support the unique requirements of connected TV, mobile and over-the-top content. And based on the company's growing list of CTV clients, it's evident that the company is well on its way to solidifying its position as a leader in the sell-side ad industry.
A company in transition
Up until September 2017, Telaria was known as Tremor Video. And Tremor Video operated both a buyer platform business (for advertisers and agencies wanting to purchase ad space) and a supply-side platform, or SSP, that allowed publishers to monetize their advertising inventory.
While being able to profit from both the buy side and sell side of the advertising world sounds great, it’s a bit like hiring a real estate agent to sell your home, only to find out that the agent is also representing the folks interested in buying your home.
Remember, buyers and sellers want the same thing. And it doesn’t matter if we’re talking about buying and selling a home, a business or advertising space. Both sides want their hired representatives to look out for their interests. And if a transaction agent is representing both the buy side and sell side of a transaction, it’s virtually impossible for that agent to remain objective and look out for both parties’ interests equally.
Recognizing that a change needed to be made, Tremor Video sold its demand-side platform (DSP) to Israel-based mobile advertising firm Taptica International Ltd for $50 million in early August 2017. And following the sale of its DSP, Tremor Video refocused all its blood, sweat and treasure on developing and perfecting its sell-side platform to help publishers maximize the value of their advertising inventory.
Here’s what Mark Zagorski, CEO of Tremor Video (now Telaria), said when the company sold its DSP to Taptica.
“There’s always been a little bit of friction because we were selling agencies and advertisers different products while we were representing publishers,” he said. “And the people who plug into that sell-side platform would always be somewhat hesitant to commit to it in a huge way because we had that perceived conflict. [The DSP sale] allows us to tell a very straightforward and simple story to the market – that we’re focused on maximizing the monetization of video inventory for leading premium publishers on any platform through software.”
The bottom line is Zagorski realized that for his company to survive and prosper in the ad tech world, he needed to refocus his team’s energy on either the demand side or the supply side of the advertising business. And since the company’s sell-side business had a higher growth rate, fatter margins and less overhead, the choice was simple.
The final step in Tremor Video’s transformation involved changing the company’s name to Telaria. And today, as Telaria, the company is all-in on its commitment to providing publishers with a fully programmatic software platform to analyze, manage and monetize its video advertising.
Improving business momentum
Ad tech has always been a challenging industry to succeed in. But given the incredible success that Trade Desk Inc (NASDAQ:TTD) has had with its demand-side platform, I’ve had my eye on Telaria for any indication that its sell-side, CTV-focused strategy was gaining momentum. And after the company’s fourth-quarter and full-year 2018 results released on February 26, I believe it’s time for small- and micro-cap investors to pay attention.
Here are some highlights from Telaria’s fourth quarter:
• Revenue up 31% year-over-year
• Gross profit up 20% year-over-year
• Adjusted earnings before interest, taxes, depreciation and amortization margin of 20%
And for the full year:
• Revenue up 26% year-over-year
• Gross profit up 20% year-over-year
• Gross margin of 88%
What’s not apparent from the quarterly and yearly highlights is that Telaria’s CTV revenue grew by an astounding 232% and now represents 33% of quarterly revenue. The company also renewed its Hulu partnership as a programmatic partner and added Cheddar and Outside TV to its growing cohort of CTV clients. Finally, Telaria continued to advance its CTV initiative by doubling the size and geographic reach of its agency-and-brand sales team.
Thriving in the ad tech industry is a nearly Herculean task. But after selling the demand-side platform and coalescing around the company’s more profitable and faster-growing sell-side division, Telaria finally appears to have found its stride.
The most significant risk to Telaria’s business model isn’t that CTV will suddenly disappear – because it won’t. Connected TV is only going to get bigger and command a larger share of ad spending. Telaria’s greatest challenge will be fending off other sell-side platforms and continuing to innovate and offer increasingly advanced programmatic-based features
If Telaria remains focused on its near-singular goal of dominating the sell-side platform space in the CTV market, investors are likely to stay invested in the stock.
Life as a public company has not been smooth sailing for Telaria. In fact, it has been torturous for long- term shareholders.
After pricing its 7.5 million share initial public offering at $10 in late June 2013 – below the expected range of $11 to $13 – the stock collapsed on day one and closed at $8.50. And things only worsened for the company when it released disappointing third-quarter earnings on November 8, 2013, and provided equally disappointing fourth-quarter revenue guidance.
After closing at $8.50 on its first day of trading, Telaria fell to $4.72 on November 8, 2013. Suffice to say that life as a public company was not going well for this small-cap ad tech firm.
Fast-forward to early August 2017, when Telaria sold its DSP to focus all its energy on its sell-side platform. The stock finally began to attract some buyers. And after trading around $2 on August 1, 2017, Telaria’s stock surged to $5.
While Telaria’s stock failed to make any progress between October 2017 and late February 2019, the company’s sell-side platform business has continued to mature and attract new customers. And when the company announced its Q4 2018 earnings on February 26, Wall Street rejoiced, and bid shares 34% higher.
Today, Telaria’s stock is back above $5 peak. Provided that the company maintains its momentum in the CTV space and the stock attracts buyers on a dip to $3.75 to $4, I believe the stock can retest its IPO-day high of $11.09.