Adtech - The Booming Industry

In the past, I had done a webinar on EV and also wrote about Sports betting as an industry. In my portfolio, Tesla remains the only EV company, while FuboTV being the only company that is still active in the sports betting industry. 

Generally 1 do not write articles on a particular sector - because I am not an expert in these industries and I definitely do not want to provide any wrong idea/information about them. 

However, my portfolio has been increasing its allocation towards the Adtech Industry. 

Image Credit: Martech Advisor

Thus, I did more research for my own benefit and here are some of my opinions.

Macro Views:

1. Shift from Traditional Advertising to Digital Advertising

With the advent of the internet, more smartphone usage, and increased viewing on streaming channels in recent years, there has undoubtedly been a move toward digital advertising.

This was more evident after the pandemic, as many of the Adtech companies hit record revenue and profit in FY2021.

2. Time Saver Platform

Rather than going through a traditional way of finding an advertising agency which provides manual rates on a single platform (like newspaper), Adtech is a time saver for the whole industry in view of the technology to match Advertisers to Suppliers using the Demand Side Platform (DSP) and Supplier Side Platform (SSP)

Furthermore, this can be done in seconds - an example is the micro-seconds required to match an advertiser to the YouTube Video, before the release of the advertisement prior to watching your favourite YouTube content.

3. Consolidation Mode

There has been consolidation within the Adtech Industry - at least from my observation of the companies in my portfolio.

An example is Digital Turbine (APPS - one of my 10x Potential Companies) acquired 3 companies between Feb 21 to Jun 21.

4. “No Ads” Platform to "Ad-Support" Platform

There is a growing trend toward ad-supported video on demand (AVOD), with the latest being Disney+ getting on board. This increases the "suppliers" in the adtech industry and also highlights the amount of cash to be earned from this new growing sector.

Do note that for suppliers, there is probably very little to be done on their end, every cent earned could possibly goes into their bottom line.

5. "No Ads" Platform Still A Market Leader

In contrast to the above, there is still a lot of "eyes" glued on these "No Ads" Platforms, such as Netflix, Apple TV, as well as the paid Ad-free tier of various streaming platforms - which I have written in this post.

Remember prior to Netflix launching its streaming services in 2007, many advertisements are shown in cable and the free TV channels. 

The shift in viewership to these "No Ads" streaming platforms resulted in a massive sudden void. In addition, the pandemic and ensuing lockdowns in 2020 has hastened the spread of these "No Ads" streaming platforms.

Thus, Adtech (also the rise of AVOD) might have raised to fill the void. As a result, most of the Adtech Firms were able to achieve record revenue in FY2021.

6. More Data, More Global, More Accurate The Advertising, Higher ROI

The more quantity and quality, in addition to understanding, of the Data on hand, are important for an Adtech company. 

This is because an Adtech company shows its effectiveness to its customers (the advertisers) by informing them of the campaign's outreach and the eventual return on investment (ROI).

Therefore, accurate targeted advertising is required to showcase a high ROI - which can eventually convinced an advertiser to become a recurring customer for the Adtech Firm.

7. More Starts-ups of the world

As more and more start-up arise around the global, there will be more and more advertising required to showcase their products and services to the world.

Because many start-ups do not make a profit, brand value is essential. Efficient marketing is probably the only to achieve that.

8. Defensive Sector

Advertising is always required, regardless of the country's economic activities (Unless there is war).

During a recession, the larger brand names' marketing budgets are likely to be cut, and rates may suffer as a result. That's when it can hurt an Adtech company's bottom line.

Regardless, I consider advertising to be a defensive industry, and Adtech will continue to be required.

9. High Margin, with High probability to be Profitable

Adtech services tend to be a high-margin business if done correctly and according to a strategy. Because everything is meant to be taken care of by technology.

The likelihood of the business being profitable is high when the margin is high.

10. Network Seems To Be More Important Than Technology

From my observation, the technology behind the Adtech Firms seems to be similar. The differences comes from the network effect and the partners you have on your platforms.

But the risk remains, particularly when examined through the lens of the advertising industry...

1. Highly Competitive Sector 

Other than competing with other Adtech Firms, they also need to compete with the publishers, the social platforms and even at an individual level, the Influencers.

Some ways to mitigate this competitiveness is to (1) concentrate on a niche, (2) enlarge your network through linking up of various DSP and SSP, as well as advertisers and publishers, (3) be the market leader and (4) work solely with selected few large social platforms like Tiktok, Meta, Twitter, etc.

2. Low Barrier to Entry

There is a very low entry barrier. One can directly compete in the advertising sector with a website and the skills of a software engineer.

Nevertheless, maintaining existing relationship with your network is key.

3. Protecting Personal Data

The world is moving towards protecting personal data, with Apple coming up with IDFA, Google removing cookies in 2 years time and Samsung also coming up with data protection with their new phones.

Therefore, it's critical for these AdTech companies develop their own first-user data identifier.

And This Is The Near Team Catalyst...

The US 2022 Mid Term Elections

Image Credit: Washington Post

For those that still do not know, this is a YouTube Video that explains quite clearly on the US Mid Terms Elections.

Base on this calendar, it will last mainly from May to Sep 2022. 

Because there is higher demand for advertising across all platforms during this time, the advertising rate will rise. Even if the platforms are not involved in the midterm elections, the higher rates will benefit them.

With that, I am eagerly anticipating the FY2022 results for the Adtech firms in my portfolio.

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Stay tuned for the next write up!