Tremor International [LSE:TRMR] [NASDAQ:TRMR], the New York headquartered, AIM-listed advertising technology platform fell by over 20% on Tuesday (16th August) after the company reported disappointing financial results for the second quarter of 2022.
The share price opened today (18th August) at 343.8p, down from 455.6p at the start of play, Monday and has ranged between 323.3p and 828p over the last 52-weeks, offering a year-to-date return of -39.42% and a one-year return of -52.06%. The current market capitalisation of the company is just over GBP505m.
Although Tremor International achieved record 2Q22 adjusted EBITDA of USD39.1m (GBP32.4m), its ex-TAC (revenue excluding traffic acquisition costs) fell from USD73.7m in 2Q21 to USD70.8m over the same period this year. Both retail and institutional investors have been keen to sell the stock since the news emerged, however this may represent an opportunity to ‘buy the dip’.
Niche positioning
Tremor International is an advertising-technology company that provides an end-to-end software platform which enables advertisers to reach relevant audiences and publishers to maximise yield on their content. The US-based company, founded in 2007, executes across all digital channels but focuses open video format ads on all devices and connected TV (CTV), boasting Amazon, Twitter and Disney as some of its notable customers.
Global digital advertising spend was around USD455bn in 2021 and is expected to grow at a 11.4% CAGR to USD700bn in 2025. Tremor International has targeted CTV and digital video as its niche, accounting for approximately 80% of its revenue, largely due to the expectation that ad spend in this subsector will grow at a faster pace than the rest of the market.
Missed Market Expectations
Tremor International’s 2Q22 earnings report did not go down well with investors. Revenue and net income figures fell short of market expectations, resulting in huge selloffs of the company’s stock. In the second quarter, Tremor International generated revenue of USD75.8m, down 7% year-on-year.
For AdTech companies such as Tremor International, however, there are significant traffic acquisition costs (TAC) that may severely distort revenue. As a result, looking at the contribution ex-TAC is typically far more helpful. In 1Q22, the company’s management predicted a second-quarter contribution ex-TAC of USD75m to USD80m. However, it came up short of this guidance with just USD70.8m, going some way to explaining the stock’s drop.
On the other hand, Tremor International achieved record 2Q22 adjusted EBITDA of USD39.1m, reflecting a 5% increase compared to 2Q21, and record 1H22 aadvertdjusted EBITDA of USD72.7m, an increase of 12% compared to 1H21. Although this is positive news for the company, it expected to see an EBITDA figure of USD40m this quarter. As a result, its achieved adjusted EBITDA fell short of the predictions it made a few months ago in 1Q22.
Scale and differentiation
Looking ahead, Tremor International expects to enhance the scale and differentiation of its platform, whilst also expanding strategic capabilities and global market share through pending USD239m acquisition of Amobee, a proposed USD25m investment in VIDAA, and completed integration of Spearad. Chief executive, Ofer Druker said the company is: “confident [we] remain well-positioned to weather continued market headwinds while capitalizing on anticipated company-specific and industry-related growth catalysts.”
The world of marketing is changing, and rapidly. In the world of Big Data, advertisers are relying more on technology, including machine learning, to deliver a far more personalised experience to consumers. It is an industry in transition. As such, Tremor International’s products will continue to be in high demand in the next few years, despite the setback suffered in the business’ latest earnings report.
