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Taptica International: THE INVESTMENT CASE

Taptica reports strong earnings from Tremor business as long-term strategy shifts toward brand advertising

The mobile advertiser is placing itself at the forefront of the digital revolution as companies and brands increasingly look to the web as the next forefront of advertising
Mobile users holding phones up
Revenues in the first half have more than doubled to US$144mln compared to last year

Taptica International Ltd (LON:TAP) has reported a strong set of earnings in the first half of its financial year.

The mobile advertiser, which uses ‘big data’ and artificial intelligence to target adverts at its clients’ desired audiences, is placing itself at the forefront of the digital revolution as companies and brands increasingly look to the web as the next forefront of advertising, leaving traditional media outlets like TV far behind.

Hagai Tal, Taptica’s chief executive, says that the company is going after what he calls the “demand side” of the market by helping advertisers find the right audience for their products, adding that the Tremor acquisition has helped transform the company from a revenue-generating company into a profit-generating one.

The AIM-listed firm reported adjusted underlying earnings (EBITDA) for the period of US$21.6mln, up from US$13.1mln in the same period last year, while revenues in the first half jumped to US$144mln from US$65.6mln previously.

The company also declared an interim dividend payment of US$0.04 per share as cashflow rose strongly.

Net cash was US$42.1mln compared to a net debt of US$4mln at the end of 2017.

In its divisions, Taptica reported that its performance-based marketing business had seen a 9.9% increase in revenues to US$72.1mln, driven by “significant” contributions from its expanding international presence, particularly in Japan through its Adinnovation subsidiary.

Meanwhile, the firm’s brand advertising division, transformed following its acquisition of Tremor Video DSP, generated US$71.9mln of the firm’s total revenue in the first half, reflecting an increased run-rate (an estimate of future performance) of 14.8% since the business was acquired in August last year.

In its outlook, Tal reiterated the company’s expectation that its full-year EBITDA would be ahead of market expectations, adding that the firm expected “sustained improvement in margins” in the second half.

Speaking to Proactive, Tal also said that the revenue share balance between the company’s brand advertising and performance-based marketing businesses would remain the same “for at least the rest of the year”, but that the general strategy would focus more on brand advertising (I.e the visibility of an ad rather than its performance in attracting clicks) due to its value generation potential, adding that there is an ongoing “gold rush” as companies seek to move away from traditional TV outlets toward online distribution.

Tal also said that following the Cambridge Analytica and Facebook (NASDAQ:FB) data scandals earlier in the year, financial investors and private equities were “returning to the space”, leading to a recovery in the value of companies in the sector as well as the return of “trust” toward companies with solid finances.

He cites cases such as the sale of AppNexus, a cloud-based online advertising platform, for a reported sum of US$1.6bn to telecoms giant AT&T (NYSE:T) in mid-August as evidence of investor confidence returning to the sector, with Taptica “in the right place with the right timing” to take advantage.

Broker forecasts align with growth potential

Analysts at Taptica’s house broker finnCap are also expecting big things from the company, lifting their adjusted EBITDA estimates for the firm by 10% to US$44mln in light of the latest numbers.

They have also touted the strong operating margins in its acquired Tremor business, adding that despite an assumption of “significantly lower margins” following the purchase, the business was “delivering impressive performance”.

The broker also said that Taptica’s reduced net debt figures have positioned it “for further earnings-enhancing M&A”, adding that discussions “are already underway with targets”.

As of late-afternoon trading on 4 August, Taptica’s shares trade at 357.5p with a market cap of around £233.7mln.

However, finnCap has a target price on the firm of 550p, a 54% upside that forecasts a potential market cap of around £359.5mln.

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