On March 12th I released an article for the Seeking Alpha PRO platform that identified YuMe (NYSE:YUME) as a buy. Since that time the price of the stock has bounced around on generally low volume and now currently sits about 10% higher. I predicated my buy thesis on a few different things. They are:
- Unique and proprietary technology
- Extraordinary insider buying
- Likelihood to beat Q1 sales estimates
- Strong balance sheet with plenty of cash
- Imminent long term profitability
- Launch of programmatic Video Reach solution
- Rapidly expanding customer base metrics
Now almost 6 weeks later following further analysis, I believe that I underestimated the potential of this opportunity given a few more key catalysts which I recently discovered about the company.
2014 Election Online Video Advertising Growth
Firstly, the 2014 US elections will provide a significant revenue boost. Since 2012, which was the first year that online video ads really differentiated from their TV counterparts, the growth in online election video ads has been exponential. 2014 will be no exception and YuMe is uniquely positioned to capitalize upon this major trend as candidates move from traditional TV ad campaigns to savvier online video strategies.
Data from YuMe illustrates that;
Following the debates, video ad campaigns have performed twice as effectively in terms of interaction rates and 15% better for completion rates (as in, the rate of people watching the videos to the end). For example, completion rates on October 4, the day after the first presidential debate, hit 78 percent, a full 11 percent higher than the average for other days in October.
I see this political trend towards online video advertising intensifying this year and even more so in to the 2016 Presidential election.
Leader in Smart TV Advertising Monetization Technology
YuMe has invested significantly in Smart TV technology, and more specifically set top advertising solutions. Through its proprietary software, the company has inked deals with both LG and Samsung to power their Smart TV ad platforms. This is the first video advertising platform for internet connected TVs. It is delivered through YuMe's patented Relevance Engine technology. In 2012, YuMe secured a $12 million investment from Samsung and Translink Capital which was targeted to directly expand the company's footprint in the growing connected TV space.
Translink Capital's Jay Eum had this to say about YuMe's Smart TV proprietary technology:
After evaluating various video and smart TV ad solutions in the market, we have determined YuMe to be a clear leader in connected TV and validated Samsung's interest in the company. We are convinced that YuMe has built the best technology in the industry through its ACE Relevance Engine.
In 2010, Intel (NASDAQ:INTC) invested $5 million in YuMe. They continue to hold this stake and did not sell during the IPO phase or following it. With the global Smart TV market expected to grow at a CAGR of 21.06% over the period of 2013-2018, investment in YuMe is a pure-play leveraged bet on the monetization of the inevitable connected TV advertising boom.
YuMe CFO Has a History of Selling Companies
A cursory look at CFO Tim Leahy's impressive resume reveals a high probability that YuMe will be (or is currently) for sale. He joined YuMe in June 2011, a little less than 3 years ago. Leahy has made a career out of situational roles by staying with companies only around 2-3 years before they either get acquired or achieve a major milestone, like an IPO. He was most recently CFO of CloudShield Technologies from 2008-2010 and left when following its acquisition by SAIC. Prior to this he served as CFO of Collation from 2002-2005, and left when it was acquired by IBM. He has also served as CFO of Covad Communications from 1997-2000, leaving shortly after the Nasdaq IPO and was CFO of MetroFi from 2006-2008 which was ultimately put up for sale in 2008 and acquired by the city of Santa Clara to support its Silicon Valley Power utility.
Needham Analyst Reiterates Buy and $13 Price Target
Unlike Tremor Video (NYSE:TRMR), a video ad network whose recent remarkable growth I profiled and is documented by monthly performance data, YuMe's network is so complex that comScore's diagnostic tool can not track their video ads. There is plenty of drama and history between comScore and YuMe over this inability to track the video ads dating back to 2008. As of now, comScore does not track YuMe, so that makes analyzing the growth of the company very difficult. Thankfully Needham analyst Kerry Rice through his industry connections is able to conduct the appropriate channel checks to determine YuMe's recent performance. Accordingly, on March 25th Rice in a research note to investors reiterated his "Buy" rating on YuMe and his $13 price target which represents an expectation of a nearly 100% share price appreciation from the current depressed levels.
In his report, Rice noted that Q1 sales are on track and that YuMe is well positioned for programmatic growth (through its new Video Reach ad solution). More specifically he wrote;
With solid visibility into a more linear 1Q14, we believe YuMe is on track to exceed revenue expectations. From our industry checks, we believe video advertising spending is in line with expectations and continues to increase at a solid pace. While at a lower revenue level, we expect YuMe's 1Q14 revenue growth to reaccelerate after a disappointing 4Q13. We expect the new customer adds in 4Q13 to propel spending higher as test budgets transition into larger campaigns, as well as an increase in spending from existing customers
YuMe is trading at historically pessimistic levels, well below its $9 IPO price for reasons that I discussed in my previous article about the company. It is reporting Q1 earnings on May 13th. With Needham's expectation of a top line beat, along with the other positive catalysts discussed here, this represents a fantastic opportunity to establish a long position in the stock.
Disclosure: I am long YUME, 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.