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Tremor International Ltd: DEEP DIVE

Taptica and RhythmOne set out to create new force in programmatic advertising

The merger is structured as an offer by Taptica that will see it owning 50.1% of the enlarged group and Rhythm One owning the remaining 49.9%
mobile marketing
OVERVIEW: TRMR The Big Picture
Video marketing requires scale, say experts
  • Mobile advertising group

  • Uses ‘big data’ and AI to target adverts at its clients’ desired audience

  • Set to merge with RhythmOne, formerly known as Blinkx

  • US$15mln share buy-back


What it does

Taptica International PLC (LON:TAP) uses technology based on AI and machine learning at a large scale to enable data-driven mobile targeting and user acquisition.

Specifically, Taptica focuses on two core revenue streams: mobile performance-based marketing (Taptica) and branded-video advertising (Tremor Video which was acquired in 2017).

The performance-based marketing segment focuses on a mobile technology advertising platform which helps brands reach their most valuable users with a wide range of traffic sources.

Tremor Video is a programmatic video platform which matches advertisers to their audiences and delivers custom video experience across screens.


What’s going on

The big news is that Taptica is merging with RhythmOne – formerly known as Blinkx, the digital ad specialist spun out from Autonomy in the noughties.

The deal is structured as an offer by Taptica that will see it owning 50.1% of the enlarged group and Rhythm One owning the remaining 49.9%.

“A merger will form one of the leading video advertising companies in the US, delivering significant economies of scale, product offering, revenue synergies and supply chains to compete with the industry leaders,” said the statement.

The enlarged company will operate under the Taptica name and be run by Ofer Druker, currently the head of Taptica’s US business.


How is it doing

A brief announcement in mid-January confirmed that cash totalled US$54.4mln at the end of December, while Taptica also said that trading in 2018 had been “in line with management expectations”.

Unfortunately, things at RhythmOne have been trickier.  Trading in the year to March was below market expectations Taptica said, though it still believes the acquisition was in its best interests.

The digital marketer added it had taken a ‘conservative approach’ to its new acquisition throughout its due diligence.

Taptica’s own trading outlook was unchanged, the April update said.


What the broker says

Finncap says that combining the two programmatic advertising platforms creates a major player in the global video advertising market.

“Taptica’s management has only just received access to a very complex and disparate organisation in RhythmOne, and there will doubtless be an evolution of expectations as understanding and integration proceeds.

“RhythmOne trading for the YE March 2019 was below expectation, but under Taptica’s management the combination nevertheless represents an excellent opportunity going forward."

A US$15mln buyback programme has been launched to deliver shareholder value.

For 2019, finncap is forecasting underlying profits of US$63.4mln, rising to US$80mln in 2020.

The full year 2019 forecast includes only nine months of RhythmOne, with the first full year in 2020.

RhythmOne is now adopting Taptica’s far more conservative accounting policies on booking revenue and development capitalisation.


Blue Sky

"US advertisers spent $48bn on programmatic ads last year, but despite its rapid growth, concerns remain about brand safety, malicious activity, poor-quality data and a lack of transparency," says finncap.

"As CTV (connected TV) consumption grows, ad spend has lagged it, much as mobile did in its early days, but Taptica now offers a full stack programmatic solution with the required transparency."

The broker’s target price is 550p against 198.5p.



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