Viant Technology Inc and the Changing Advertising Landscape
Viant Technology Inc (DSP) is a digital advertising company. The company provides a platform for the purchase of targeted advertising space by agencies and businesses. They market a proprietary demand-side platform (DSP) named Adelphic that allows advertisers to plan, buy and track their omnichannel campaigns.
If you’re a follower of The Trade Desk (TTD), this all sounds pretty familiar. TTD also offers DSP for advertisers and their agencies.
Advertising is changing. Traditional media is being replaced by social media, video, mobile advertising and connected TV. Advertisers need to be agile and use automated solutions like Adelphic. TTD and Viant fill a huge need for advertisers.
The share price
Viant went public on February 10, 2021 on Nasdaq. The initial IPO price was $25. the stock opened at $44 and climbed past $60 in the following days. This euphoria was short-lived, however, and the stock has been falling ever since, as seen below.
In fact, it now trades at less than half of its IPO price. The company’s market cap is now just over $715 million.
Due to the downtrend, the stock is trading at an EV/EBITDA ratio of just over 21x. It’s not an unreasonable assessment, but investors aren’t biting. Growth in 2022 above expectations will be the key to changing fortunes.
Just looking at Viant’s revenue can be misleading. Unlike The Trade Desk and some other digital advertising companies, Viant reports gross revenue. They also report a metric called “contribution-exTAC” or revenue minus traffic acquisition costs (TAC). This figure is the equivalent of the turnover of a net income reporter such as TTD. This is the number that should be used to measure price to sales and other ratios for proper comparability. Those who follow Perion Network (PERI) are likely familiar with this process.
For the second quarter of 2021, Viant reported $32.2 million in non-TAC contribution. This is an impressive 61% year-over-year increase. However, this growth is tempered as the second quarter of 2020 was the high point of the pandemic disrupting the advertising industry. The contribution of CTV excluding TAC alone increased by more than 100%. CTV is quickly becoming the most competitive of the non-traditional media. It’s encouraging.
The company expects a contribution of $32.5-33.5 million ex-TAC for the third quarter of 2021. This is a small growth compared to the second quarter and only 16-20% compared to the last year. It’s not encouraging.
The company’s midterm guidance for non-TAC contribution for fiscal 2021 is $139.5 million. That would be a 26% increase from pandemic hampered in 2020. This tepid growth is a concern for valuation. The PS ratio based on this HT guided contribution is greater than 5x. Analysts only expect 21% revenue growth in 2022. This slowdown in growth needs to be reversed in order to reverse the downward trend for this stock.
Is Viant a buy, sell or hold?
Analysts are quite bullish on Viant according to Seeking Alpha’s Wall St. Analyst Ratings Summary. Three analysts are very bullish to go along with two bulls and two neutrals. There are no bearish or very bearish notes.
Another bullish sign is the increase in the number of customers and spending per customer.
Source: Q2 Investor Presentation
Customers are up more than 8% from the first quarter and revenue per customer is up 2%.
It’s a small glimmer of hope for Viant to accelerate its growth through 2022 and beyond. However, for my money, the company must first show the results and significantly increase the tips to get a buy rating. At the current price, I consider it to be a HOLD.