I discovered this forum in mid-2019 and for the past 2 years, I have realized enormous benefit from it, both in terms of knowledge and profit. I want to attempt to give back here:
Let me preface this by saying that I have done a great deal of investing in the broad SaaS sector stocks often discussed here. I got exposed to my first SaaS company back in roughly 2007 or 2008, a young start up that was ahead of its time. Many of you know of the technology adaption curve so I won’t spend much time on this. Suffice to say that the late 2010’s and early 2020’s are clearly the steep part of the S curve for SaaS. 2007-08 was the early adaptor phase and nothing big became of that company. However, SaaS is not the only technology seeing this portion of the adoption ramp at this time. My portfolio has other investments in FinTech, Solar Technology, and Programmatic Advertising that are at similar places in their adoption curves.
In fact the best performing stocks in my portfolio YTD in 2021 are not SaaS stocks. They are Magnite -(MGNI), a company in programmatic advertising that is up 72% YTD and SunPower (SPWR) which is up 25% YTD, even after today’s tech sector thrashing. In fact, I sold partial positions in both of these companies when they were up over 100% YTD (and were multi-baggers already for me) just a couple weeks ago.
I want to talk about Programmatic Advertising today. I have alot of history with this technology and that has helped me find companies that leverage it successfully. I’ll mention the specific companies first:
The Trade Desk (TTD), purchased in June 2017 at $53 now trades at $791. It closed above $900 on Friday and is well below it’s ATH of $960.
Magnite (MGNI), purchased in Nov 2020 at $15 now trades at $53 and recently hit an ATH of $64. Their recently announced acquisition (last week) looks like it will be hugely accretive to revenue and profitablity and I raised my price target significantly as a result.
Viant (DSP), a recent (February 10th) IPO that popped 90% at it’s open. I bought over the next couple days between $48-53. It dropped 10% to $58 in today’s market, but seems to have gotten in all back after hours and is posting a $64 price at this writing.
Those are my favorite players, now for the mini-primer:
Advertising has been making money for those at the forefront for decades. In the 1950s-1990s the big players were mostly on Madison Avenue in NYC. The series “Madmen” glamourized (and ridiculed) the era. It was where all the rich NYC playboy types came from before investment banking became the place to be in the 1980s. As the 21st century began, print media lost to internet, but the advertising practices didn’t really change at first.
In the early 2000s, I was on the BOD and was an investor in a company that provided corporate research, background, and information online. At first we sold the information on a piecemeal basis and after a few years, achieved a few million dollars in annual revenue. But in 2008, we decided to give the information away for free and move to an advertising model to generate revenue. We built a sales force that sold adds and our customer list was impressive. Major customers included Visa, AmEx, Chase Bank, HP, Dell, Marriott, Starwood, Hertz, FedEx, UPS…lots of big names. In a few short years, we went from millions of dollars revenue to tens of millions of dollars in annual revenue and realized a private equity market cap of over $200M. We thought we were headed towards becoming a unicorn, which back then was a company that realized a private equity market cap of over $1 billion. That was 2012.
Unfortunately, something else was happening. Actually two things, and Google was doing both of them. First, they were harvesting the information on our web site (and others) and making some of it available in their search result page on the right hand side. That had the effect of reducing our visitors which at its peak totaled over 30 million uniques per month. It’s a big part of the reason why they are considered to have monopolistic practices in some circles, and not what I want to focus on today. But here’s a recent article that discusses the matter, if you are interested:
https://www.wgbh.org/news/commentary/2021/02/10/google-and-f…
The other thing Google did was invent programmatic advertising. Up until this time, when a company wanted to advertise on a web site, they had to negotiate contract terms with the site. How many months? How many impressions? Do you want to pay for eyeballs or click throughs? What’s the cost per eyeball/click thru? What’s the maximum spend (per day or week or month)? It all had to be negotiated up front. And once you signed the contract, you were usually committed for the duration. And then, it was up to you, the advertiser, to figure out how effective your ads were on one site compared to others. And as cell phones became popular, the breakdown of ad rates on mobile vs desktop became another complication to contend with.
But around 2012-13, Google made it possible for advertisers to bid on keywords and only have their ads appear on pages that were responses to the key words they cared about. Furthermore, they could submit a bid or price on the keyword that contained the metrics of things like cost per impression and maximum spend. This provided a number of advantages:
- advertisers could reach a much more targeted audience based on the keywords they bid on
- companies could dynamically alter their advertising spend on a daily, or even hourly basis if they wanted
- if a certain keyword became too expensive, they didn’t have to advertise until it was perceived to be “worth it” or they could choose other key words that were meaningful and less expensive
- the need for advertising sales forces, contract preparation, and review disappeared which saved significant manpower and legal costs
- AND Google provided tools that made it possible (and easy) for advertisers to monitor and measure the reach an performance of their ads
This basically cooked our company. Stick a fork in us, we were finished. Google had completely changed the advertising landscape as it had existed for DECADES previously. This wasn’t just like placing an ad in Sports Illustrated because you wanted to reach sports enthusiasts. You could target an ad to people who loved football, or a different one for people who horse racing, or a different kind of ad for people who followed the Iditarod. Eventually, Facebook followed suit. Together, they made programmatic advertising much more effective over time by monitoring the cookies of each users internet experience and tailoring ads not only based on what you were looking at (or searching for) on your computer or phone at that moment, but also, what you had recently looked at, where your computer was located or where your phone had traveled to, etc.
This was huge, and like I said, it killed our company, so I will never forget the impact it had. So when I learned several years later about this company (TTD) that was making programmatic advertising available to all advertisers on any site, it was a no-brainer for me to invest in them. It was just so obvious that their success was inevitable as long as they had a capable management team. After a few hours of research there, the answer was a resounding YES.
But the story doesn’t end here. In addition to TTD, there are a number of other companies that are adapting the methodologies and advantages of programmatic advertising to other platforms. Connected TV (CTV) is the most notable new one. 2021 will be the year that more US households don’t have cable TV than do. Typically, the demographics of CTV households are younger and have more disposable income (which advertisers love). The early 2020’s will see huge profits come to programmatic advertising companies. MGNI is at the leading edge of bringing programmatic advertising to CTV providers.
Here’s just one of many articles you might find on the topic:
https://www.investors.com/news/technology/digital-advertisin…
And what’s really beautiful is that TTD and MGNI have complementary platforms. They don’t compete. In fact, they recently announced a partnership. TTD operates on the buy-side (a tool for companies that want to place ads) whereas MGNI operates on the sell-side (a tool for companies with content that they want to host ads on).
These companies, this industry as a whole, really didn’t even see too much of a hiccup during the pandemic. If you recall, companies were rolling out tons of new ads, some with masked patrons, some providing encouragement to “get through this”, and some just to keep brand awareness for when the world returned to normal. And then there were many ads with suggestions about what to do with the income you had nowhere else to spend (home improvements, take out food, etc). And CTV grew because we all spent more time at home and didn’t have as many outlets for entertainment. As things get back to normal, ads will ramp again for so many businesses that have been dormant (travel, for example) and for so many forms of entertainment that have been suspended (sports, music events, theatre, fine dining). It will only get better from here.
Mitch
Long MGNI (#1 holding), TTD (#3 holding), and DSP (small position, for now)