Programmatic advertising is a huge $150bn market in the US, but it has not been understood well here in Australia. Could the EN1 stock price be undervalued because of that?

Programmatic advertising is a large and growing industry, and globally the market will reach US$155 billion by the end of this year, according to survey company Statista.

The US remains the leading programmatic advertising market worldwide, with China now also beginning to spend enormously on digital advertising.

But what exactly is programmatic advertising?

Programmatic advertising refers to the automated buying and selling of digital ad space.

This is in contrast to manual advertising, which relies on negotiations between publishers and advertisers.

The use of technology and algorithms have now streamlined that whole process, and in the US, 99.9% of digital advertising happens through this automated process.

Despite operating in a large global market, the highly technical nature means the industry is little understood, especially here in Australia where it hasn’t really taken off.

ASX-listed  engage:BDR (ASX:EN1) is one of the pioneers of the industry, having started the business 12 years ago.

Stockhead spoke exclusively with EN1’s CEO Ted Dhanik, to get a more thorough understanding about the business and the industry in general.

Based in Los Angeles, Dhanik was one of the early directors of social media company MySpace, which was sold to Rupert Murdoch for $580m back in 2009.

“By far the biggest market for programmatic advertising is here in the US, where (it covers) almost 100% of all digital advertising,” Dhanik told Stockhead.

“Programmatic advertising basically means that you can transact and buy ad placements through automated platforms, rather than using contracts and faxing manual agreements.

“These platforms are essentially auctioning and bidding, and the suppliers are supplying the ad placements or the real estate itself.”

In this context, suppliers mean the publishers of content, as opposed to the advertisers.

Through EN1’s unique and proprietary ad exchange platform that was developed and improved in-house over 12 years, the company is able to conduct 100 billion of these auctions a day.

Each auction happens in real time, and lasts for only two hundred milliseconds. But there is not always a winner, as the buyers’ (advertisers’) bid price might be lower than the floor price set by the publishers.


EN1’s target market

EN1 targets the mobile app and connected television space, which is where Dhanik reckons all the ad budgets are headed, including those in Australia.

The company specialises in video advertising, and works with some of the biggest social media influencers through its Iconic Reach Platform.

“We hardly target websites because there’s not much revenue there anymore, because you cannot target website users the way you target app users,” Dhanik said.

According to Dhanik , GPS coordinates of each device can be obtained from apps, allowing the company to get rich data and target the audience more precisely.

“Whereas on the web, you just know the IP address and you don’t know the latitude and longitude.”

This is critical, because a lot of advertisers these days want to get a precise location of its target audience, Dhanik said.

“Advertisers are targeting what’s called hyper geo-targeting. For example, for a car dealership, they might want to target a convention centre on a specific day, because they know there is a specific conference there.”

The company also works on the supply side, which means that it’s working with publishers as opposed to advertisers.

The technology is also optimised on machine learning and artificial intelligence, which means that all its transactions are done automatically.

This includes customer acquisition, which allows the company to do away with hiring sales people. At present, EN1 has less than 20 full time employees who generated $15m revenue in FY20.

Margins in the business are north of 50%, and since 2009 the company has never had to raise a single dollar of outside capital until its IPO in 2017, after several hundred million dollars generated in revenue.

Although most of its revenues are generated in the US, the company has footprints in Ukraine, India, and the Asia-Pac including China, Japan, and Australia.

Its stated long term goal is to become Asia’s largest programmatic platform in digital video, display advertising and influencer marketing.

Dhanik says the company is always on the lookout to acquire publishers and media trading companies to expand the use of its programmatic and influencer platforms, especially in the Asian markets.

“But if we do acquire, it will ideally be with debt and won’t include equity, because there is too much dilution already. Plus debt is cheap right now,” Dhanik told Stockhead.


Is EN1 undervalued?

Recently, there has been a flurry of capital raising and M&A activities within the advertising tech market, and most of that action is happening in the US.

US programmatic advertising company AdTheorent has recently reached a $1bn SPAC deal to go public, while its US counterpart Teads is also targeting a $5bn IPO.

But in Australia, the market is still subdued with only one other competitor playing in the space,  Adslot (ASX:ADS).

Adslot has a market cap of $48m, compared to EN1’s market cap of just under $10m.

According to Dhanik, Adslot’s share price trades on 6x revenue multiples, whereas EN1 is trading at just 0.3.

“Our losses are less than Adslot, and our revenues are always greater, but their market cap is much higher than ours,” he said.

He believes that EN1 is grossly undervalued, and cross-listing the stock on the NASDAQ could potentially go a long way towards leveling its true value.

“If you look at the NASDAQ adtech and CTV stocks, they’re trading at between 10 to as high as 50 times revenue multiples.

“Trading on NASDAQ will mean that our valuation is on the way to being levelised with our peers.”

“Another advantage of listing in the US is that we can call on the market makers to bring in institutions in the stock, which we can’t really do in Australia, as market makers don’t exist here.”

This article was developed in collaboration with engage:BDR, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.