SSNLF - Tremor International Is Positioned For Profit Growth

• Tremor International went public in June 2021, raising approximately $129 million in gross proceeds in a U.S. IPO.
• The firm provides advertisers and publishers with an online platform for their digital marketing efforts.
• TRMR is producing profit, copious free cash flow and appears well positioned for advertising industry growth ahead.
• For patient investors, my outlook is a Buy on TRMR at around $10.20.

A Quick Take On Tremor International

Tremor International Ltd ( TRMR ) went public in June 2021, raising approximately $129 million in gross proceeds from an IPO that priced at $19.00 per ADS.

The company has developed an online video advertising platform for publishers and advertisers.

For patient investors, my outlook is a Buy on TRMR as the company appears well positioned with its end-to-end approach while generating positive financial results.

Tremor International Overview

Tel Aviv, Israel-based Tremor was founded to assist advertisers and publishers by creating an end-to-end automated video advertising marketplace.

Management is headed by Chief Executive Officer Mr. Ofer Druker, who has been with the firm since November 2017 and was previously CEO of Matomy Media Group.

The company’s primary offerings include:

• DSP - Demand Side Platform

• DMP - Data Management Platform

• SSP - Supply Side Platform

• Analytics.

The company pursues relationships with blue-chip global brands and their advertising agencies as well as publishers in several industries such as consumer, financial, entertainment, healthcare, retail and others.

Tremor’s Market & Competition

According to a 2020 market research report by Mordor Intelligence, the global market for online advertising was an estimated $304 billion in 2019 and is forecast to exceed $982 billion by 2025.

This represents a forecast CAGR of 21.6% from 2020 to 2025.

The main drivers for this expected growth are an increase in online advertising demand from enterprises and more programmatic purchasing options by suppliers.

Also, while the COVID-19 pandemic had a temporary slowing effect on growth in the first half of 2020, online marketing is expected to become an even more prevalent method of marketing in a post-pandemic business environment for many industries.

Major competitive or other industry participants include:

• Roku (ROKU)

• Viant Technology (DSP)

• Samsung (SSNLF, SSNNF)

• MediaMath

• Magnite (MGNI)

• PubMatic (PUBM).

Tremor’s Recent Financial Performance

• Total revenue by quarter has risen markedly over the past 5 quarters:

• Gross profit by quarter has also grown considerably:

• Selling, G&A expenses as a percentage of total revenue by quarter have trended upward in recent quarters:

• Operating income by quarter has trended upward slightly though unevenly:

• Earnings per share (Diluted) have remained positive with notable variation:

(All data in above charts is GAAP)

In the past 12 months, TRMR’s stock price has fallen 50.5 percent vs. the U.S. S&P 500 index’ drop of around 9.2 percent, as the chart below indicates:

Valuation And Other Metrics For Tremor

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be Viant Technology; shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

A full comparison of the two companies’ performance metrics may be viewed here .

Although it may be more relevant for enterprise software companies, the Rule of 40 is a rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

TRMR’s most recent GAAP Rule of 40 calculation was 72% as of March 31 2022, so the firm has performed quite well in this regard, per the table below:

(Source - Seeking Alpha)

Commentary On Tremor

In its last earnings call (Source - Seeking Alpha ), covering Q1 2022’s results, management highlighted its revenue growth trajectory despite market conditions including ‘supply chain constraints, inflation rising interest rates, and the war in Ukraine.’

CEO Ofer Druker credited its previous strategic decision in 2019 to become an ‘end-to-end platform’ with improving its growth and profitability in recent periods.

Management also believes it is ‘minimally exposed to cookies’ and the negative impacts of major platform (Apple and Google) restrictions or phase out of their use.

As to its financial results, total revenue grew by 13%, driven by organic growth despite typical Q1 seasonal weakness for foreign exchange.

GAAP operating income dipped as Selling, G&A as a percentage of revenue rose, continuing a general rising trend in the important efficiency metric.

For the balance sheet, the firm finished the quarter with nearly $371 million in cash and equivalents, with no debt and copious free cash flow generation, so TRMR has a strong balance sheet and cash position.

Looking ahead, management sees a stronger second half of 2022, with increased advertiser spend in sports and the U.S. midterms election.

Over the medium term, the company notes that ‘several major streaming services’ have indicated ‘interest in potentially supporting advertising,’ which may portend further growth for the platform.

Regarding valuation, the market environment has pummeled valuations, pushing TRMR down to an EV/Revenue multiple of 1.2x.

I believe this valuation drop is overdone, especially for a firm that is profitable and generating considerable free cash flow.

The primary risk to the company’s outlook is the potential for a global slowdown and/or recession which may reduce client marketing budgets.

A potential upside catalyst to the stock in the medium term could include a shallow recession and return to growth as a backdrop.

For patient investors, my outlook is a Buy on TRMR as the company appears well positioned with its end-to-end approach while generating positive financial results.

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