How to invest in video ads instead of just clicking skip

In January 2019, Telaria shares were trading around the $US 3.19 level. This year the shares managed to push above $US11.50 (about $17) in early January. That is a massive increase - in the region of 260% - that would have made a lot of investors happy.

Looking at the charts, there has been a clear growth in bullish momentum over the past year, with a solid boost in trading volumes reflecting underlying support for the higher prices.

While we can't rule out near-term dips in price, we would view such moves as corrective while support in the region of  $US8.50 through to $US7.50 underpins the stock. In time, we anticipate a continuation of the upward trend to new highs beyond the $US11.82 intraday high of January 9.

Snapshot of financial results

At the start of the corporate reporting season in the US this year, Telaria's preliminary estimated results showed:

• 2019 revenue is expected to be about $US68 million, up 23% from 2018;
• Fourth-quarter 2019 revenue is expected to be about $US20 million, flat compared with the same period last year;
• Adjusted EBITDA for the fourth quarter and full-year 2019 are expected to be positive, with full-year adjusted EBITDA representing a significant improvement over the same period last year.

Who is Telaria and what does it do?

The name may not be familiar at all. In fact, you may not even think that companies of this type exist. But they do. They operate using cloud computing, big data and artificial intelligence so efficiently that we don't even notice their work in the background.

Telaria is a data-driven software company that provides an automated video monetisation platform for advertisers worldwide. Its products and services make it easy for advertisers to reach millions of viewers in the most efficient - speedy and cost-effective - way.

Telaria, founded in 2005 and listed on the NYSE in June 2013, operates in one of the highest growth industries today - programmatic advertising. According to the Interactive Advertising Bureau (IAB), advertisers are expected to dedicate more than half of video budgets to original content while increasing their investment in programmatic video inventory.

These industry figures tell the story:

• $US18 million - average advertising spend on digital video in 2019;
• $US14 million - average advertising spend on digital video in 2018;
• $US29.24 billion - estimated value of programmatic video ad spend in 2019.

What is behind Telaria's healthy share performance?

There is no doubt about the proliferation of big data, cloud computing and other advanced technology in various industries. And with digital technology being the norm in the delivery of information, education and entertainment, the global advertising industry is one of the biggest users and beneficiaries of these automated applications.

Given the healthy industry outlook, Telaria is riding the wave of positive sentiment and anticipated growth in this niche but thriving industry.

Merger to create an industry giant

Another major factor in Telaria's performance is the recently announced merger with Rubicon Project, also a publicly listed company (NYSE: RUBI) and recognised as one of the world's largest advertising exchanges.

According to the two companies' announcement, the merger will create the world's largest independent sell-side advertising platform.

Telaria will bring its expertise in connected television to Rubicon's programmatic platform. Industry analysts who see a formidable combined entity said the merged companies will let publishers continue to buy ads on desktop, audio, mobile and other video platforms across an increased geographic footprint that includes the Americas, Europe and Asia-Pacific.

In a statement during the announced merger, Telaria CEO Mark Zagorski said: "The reason why this merger made so much sense is there are so many complementary components."

According to Zagorski, it will allow the company to better compete with even larger players and also better position itself for the era of connected television—a sector of the ad-tech space that's expected to grow next year.

Recent industry reports confirmed that the deal, expected to close in the first half of the year, comes at a time when a number of advertising technology and marketing technology companies are merging or selling with higher frequency. Some companies are selling to become tools within larger firms while others are merging to create the scale needed to compete with juggernauts like Google and Facebook.

Forbes magazine reported that the combined revenue of both companies was $US217 million between the end of September 2018 and September 2019, a 32% increase over the same period between 2017 and 2018.

What are analysts saying about Telaria?

Given its stellar performance over the past 12 months, Telaria has received favourable analyst updates with almost unanimous upgrades on the share price. Most market analysts following Telaria have issued a "buy" for the stock.

A number of analysts have also lifted their price estimate of Telaria shares from $US12 to $US14 based on December 2019 reports.

Conclusion

With the planned merger of Telaria and Rubicon Project expected to be finalised in the first half of the year and given the robust outlook for the ad-tech industry, Telaria looks set to capitalise on its bigger presence and wider reach in the years to come.

Given the share price's uptrend in recent months, we consider it a buy.

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