CTV - Innovid: A TV Measurement Disruption Play

2023-10-11 07:32:17 ET

Summary

• Innovid operates an ad platform and measurement service that is slowly growing revenue despite softness in the ad market.
• CTV has plenty of cash to sustain a few more rough quarters and is trading at a 22% discount to book value.
• Goodwill is a potential concern, but insiders have been buying the stock since May.

With a Quant Rating under 2, Innovid Corp. ( CTV ) is ranked 28th out of 33 advertising stocks currently being tracked by Seeking Alpha. The stock has been utterly punished since going public via SPAC merger near the end of 2021 and has been down by as much as 92% in the 23 months it's been trading as a public company.

At $1.12, CTV is up about 50% from its all-time low of $0.75 back in April and the shares are currently trading at a 22% discount to book value. As a digital ad platform that is focused on ads, personalization, and measurement for convergent TV campaigns, Innovid may be getting interesting down here and could be worth a look depending on investor risk tolerance.

One of the pain points in TV advertising has historically been scaling reliable viewer measurement. Companies like comScore ( SCOR ) and Nielsen ( NLSN ) have been able to estimate traditional linear television viewing through various methodologies through the years. Each of those methodologies has historically been far from perfect. In a world where streaming takes a larger share of TV viewing than cable, measurement has become more fragmented and there is not yet a clear heir apparent to Nielsen from where I sit.

This is an area where Innovid potentially offers the market a solution because the platform ingests data from both smart TVs and cable set-top-boxes. Innovid is able to create a converged TV measurement that gives ad buyers a better assessment of campaign effectiveness. But beyond the measurement component of Innovid's product suite, the company also operates an ad server that generates most of the company's revenue at this time.

Innovid Leadership

Innovid was co-founded by current CEO Zvika Netter in 2008. According to his LinkedIn page , Netter previously founded NTR Visual Technologies in 1994 where he served as CEO before selling to a Nasdaq-listed company in 2006. He also co-founded a non-profit called GarageGeeks in 2006 with another Innovid's co-founder Tal Chalozin. Chalozin previously served as Innovid's CTO and has subsequently founded an additional company called 257 within the last year. The company's CFO is Tanya Andreev-Kaspin. She has been with the company in various financial roles for 12 years and took her current role in early 2020.

Revenue and Earnings

I've mentioned the measurement solution for Innovid already but the largest driver of the company's revenue thus far has been its ad server. Innovid also offers ad personalization, which is a very interesting concept because it allows viewers to see different creative from the same advertisers depending on what will likely nudge an action to a larger degree. For instance, ABC Company can use Innovid to serve Person 1 a completely different ad than it serves Person 2 even though ABC Company may be marketing the same product to both viewers.

In Q2-23, Innovid grew revenue 4% year-over-year to $34.5 million. This growth largely came from the US market where Innovid now derives 91% of its total revenue. At 10%, the biggest area of revenue growth for Innovid in Q2 came from the measurement category. Measurement also made up 23% of the company's total revenue in the quarter with ads and personalization combining for the remaining 77%. While still high at 75%, there has been a noticeable trend lower in gross margin over the last several quarters.

Innovid was able to cut operating expenses by 13% year over year due, in part, to a 24% reduction in headcount. Despite those efforts, the $19 million in negative net income highlights what was arguably Innovid's worst quarter as a publicly traded company on paper. Though it should be noted that $14.5 million of that net loss was due to a goodwill impairment charge.

Balance Sheet

Innovid's balance sheet isn't actually all that bad for a company that is down 90% in two years. With $43.4 million in cash, $90.7 million in current assets, and just $53.8 million in total liabilities, CTV shares are trading well below the $1.37 book value of the stock. However, there is a fairly large difference between the company's $1.37 book value and the $0.43 tangible book value. Something that I do find to be a bit concerning is the amount of goodwill on the balance sheet.

Even after the $14.5 million impairment, goodwill and intangible assets make up a fairly large 53.5% of Innovid's total assets. Per the latest 10-Q, the impairment was in response to a quantitative assessment that was triggered because the company's total market capitalization fell below its internal goodwill valuation:

In the second quarter of 2023, the Company experienced a decline in its stock price resulting in its market capitalization being less than the carrying value of its one reporting unit.

If I'm interpreting this accurately, CTV could theoretically enter a dangerous feedback loop if the market cap goes below $102 million and the company is forced to continue impairing goodwill. Perhaps that is why we've seen insiders defending the stock between May and August.

Insider Buys

Given what I'm sure has been frustrating stock performance for shareholders to this point, I think it's encouraging to see insiders have been buying shares of CTV in recent months:

Even including the small sells from Netter, Chalozin, and Andreev-Kaspin in early January 2023, the net change in insider ownership in 2023 has been $368k in purchases. Netter's 100k share buy in May when the stock fell below $1 more than made up for his January sale of 83k shares at $1.19.

Risks

There are several additional risks to consider in going long CTV. For instance, revenue growth has definitely slowed this year and while that's likely more indicative of macro weakness than anything else, a possible recession is something to keep in mind. Advertising budgets are generally cut in that kind of environment and even connected TV ad spend won't be immune from that.

An additional risk is competition. There are a lot of competitors in the programmatic ad space and there is certainly no guarantee Innovid's will grow share or even maintain share of a growing pie.

Investor Takeaway

I do like the vision of this company. In my personal view, there's a lot to like about a digital advertising platform that can generate incremental revenue from selling personalized ads and measurement as an add on to clients who are already using the Innovid ad server. Attribution and measurement in TV have been begging for innovation for years and I think Innovid could be well positioned to serve that demand. There are plenty of risks, but insiders have been net buyers this year and at prices near current levels. I think CTV is worth a small speculative bet after such a large selloff.

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