Tremor Video Is A Buy Ahead Of Earnings

Apr.22.14 | About: Tremor Video (TRMR)


Tremor Video's highly anticipated Q1 earnings are to be announced on May 6.

Analyst sales estimates at very low end of recently provided guidance range.

Monthly comScore network performance data for Q1 significantly exceeds expectations.

Craig Hodges, prominent hedge fund manager, discloses a passive stake of 5.1% of TRMR.

Company officially launches the first ever all-screen programmatic video advertising solution.

Following an anemic trading session on Monday of only 79,000 shares changing hands, it is becoming pretty clear that not many people are paying attention to Tremor Video (NYSE:TRMR) stock. Based on my market experience, these types of situations are very ripe for opportunistic traders like myself to exploit a perceived misunderstanding. I fully expect Tremor Video stock to not only trade up in to the May 6 Q1 earnings report but to exceed analyst expectations on the top line, and by a significant margin.

While analysts are estimating Q1 sales of $29.38M, Tremor Video's own guidance calls for revenues of $29M-$31M for the quarter. It is important to note that Tremor Video has been extremely conservative with guidance, exceeding their revenue projections in Q4 by more than 20%. I think that the reported number will land on the high end of the range or above, representing a significant beat by as much as 10% or more. In addition to simply thinking that the analysts are too pessimistic and Tremor Video's low-end of the range is sandbagged, reports from comScore for the past three months paint a very positive picture about the company's performance.

Released to little fanfare on Good Friday, this latest comScore report indicates incredible growth not only YOY but simply month to month in ad video views. The company served up a record 1,507,126,000 video ads, exceeding their previous best month ever by over 25%. Furthermore the percentage reach of their ads on the US population exceeded 39% for the first time ever. Clearly this is a company firing on all cylinders but being forgotten in light of the trendy discussion of recent wildly hyped Ad Tech IPOs like Rubicon Project (NYSE:RUBI) and TubeMogul. If Tremor Video changes the expanding "O" in their logo to a "cloud" its share price could double. There is a false market perception that they are not high tech, but nothing is further from the truth.

On April 15, Tremor announced, again to little fanfare, that it has officially launched the first ever all-screen programmatic video advertising solution. This is a game changer and is based on its patented VideoHub technology. Importantly, programmatic enhances not only sales but margins, as it is performance based. Tremor's pressured margins have been the main criticism of the company. Surely this will drive expansion in margins going forward as the move away from old school demo-based pricing begins to take stride. From the press release:

While other companies deliver "cross platform" campaigns with extensive manual work, managing different line items for each screen, Tremor Video's optimization is completely automated. This means that strategists and buyers no longer need to predict the right amount of their budgets to allocate to each screen, but instead can set a campaign goal and let the technology deliver the optimal mix across all devices.

While the public hasn't been paying much attention to Tremor Video stock, notable hedge fund manager Craig Hodges certainly has. In a 13G filed on April 10, First Dallas Holdings reported a 5.1% passive stake in the company. I speculatively expect Hodges to continue to load shares as its not likely that he would stop at 5.1% as he would have instead stopped at 4.9% and avoided the reporting requirement. Other major holders of Tremor Video stock are Canaan Partners with 16% of the float, Meritech Capital with 8%, and Wellington Management with 4.5%.

Adding all of these holdings up indicates that the amount of shares available for the public to buy is relatively small. Accordingly, a beat on Q1 earnings may very well trigger a significant run on the stock. This is quite a quite common occurrence with these low float, tightly held, small-cap technology companies.

Disclosure: I am long TRMR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.