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Risk or Reward: Should you add Taptica to your portfolio?

Publication Date: 04 Mar 2019 - By Kshitija Bhandaru By Kshitija Bhandaru
Actionable
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Equity Fundamental Equity EU ex-UK UK Technology

Taptica International (LON:TAP) is a mobile advertising platform listed on the London Stock Exchange's junior market AIM. The company provides data-focussed marketing solutions that help brands reach their users. The increasing popularity of digital media and marketing has got marketers targeting customers where they are usually found-on their mobile devices.

Digital advertisers are therefore tapping into mobile advertising platforms-such as Taptica to increase brand awareness and conversions. The company's USP is its proprietary technology based on artificial intelligence and machine learning at big data scale. It works with leading brands such as Amazon, Disney, Facebook, Twitter, and OpenTable.

Stock price direction

After rising ~165% in 2017, the stock lost much of its momentum in 2018, declining 65% and by a further 3% YTD 2019, trading around 160-165p range at the time of writing.

However, on the news of Taptica’s £135m all-stock takeover of US-focused peer RhythmOne, which was announced in February this year, saw the stock jump ~6%. With this combination, Taptica expects to become “one of the leading video advertising businesses in the US.”

Taptica’s financials

Taptica's current market cap stands at around £106.4m. In the six months ended June 30, 2018, the company's revenues increased 119.4% to $144m, compared to the first half of 2017. The growth in total revenue reflects the contribution from Tremor Video DSP, which Taptica acquired in August 2017. A 9.9% growth in revenue in the performance-based marketing business, which accounted for 50.1% of total revenue, also contributed to the total growth.

The core mobile apps business grew by 24%, driven by an increased presence in Japan and growing demand from the e-commerce and video-on-demand segments. Gross profit increased by 128.4% to $58.5m compared to $25.8m in the corresponding period in the previous year. Adjusted EBITDA for the period was $21.6m compared with $13.1m in H1 2017. Net cash inflow from operating activities was $21.5m compared to $13.7m in H1 2017.

Taptica board declared a dividend of $0.0398 per share. The company offers its investors 25% of net profits in dividend payments.

The verdict

Taptica is optimistic about building on the momentum it saw in the first half of the year as it continues to liaison with “Tier 1 advertisers” against a backdrop of increased access to the internet, smartphones and video consumption. In its performance-based marketing business, the sales momentum of the first half of 2018 is expected to spill into the second half through the expansion of its international client base.

TAP has delivered significant growth in revenue, profits, and also paid a dividend. The company has also raised $30 million of equity to lower its debt and to better position itself for M&A opportunities and it has been “presented with acquisition opportunities of a larger magnitude than initially expected.”

With a consensus target price of 445p per share, the stock offers a considerable upside from the current 155p per share, though not without risk. Buying a company with a robust outlook at a cheap price always makes for a good investment thesis.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Kshitija Bhandaru

 

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