Top Ad-Tech Stocks: Q3 2022 Sector Overview

Aug. 23, 2022 11:48 AM ETFUBO, PUBM, TTD, MGNI, META7 Comments

Summary

  • The ad-tech sector's performance is closely linked with the macroeconomy. This sector has been hit hard in the last few months due to global uncertainty.
  • IAC leads the sector, with the analysts’ expecting its revenue to grow 44% in Q3, followed by fuboTV, which is expected to grow 37%, and DoubleVerify is expected to grow 32%.
  • For the current fiscal year, analysts expect fuboTV to have the highest revenue growth estimate among ad-tech stocks. It is followed by IAC, which analysts expect to grow by 49%.
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The ad-tech sector's performance is closely linked with the macroeconomy. This sector has been hit hard in the last few months due to global uncertainty. We believe this sector will recover when the economy starts picking up. It is practically impossible to time the market. However, we believe that being prudent and buying stocks during the downturn helps to outperform the market in the long term.

Below we review the stocks in the sector to find out which companies have performed well in the recent quarterly results and which companies stand out in revenue growth, profits, cash flows, and earnings surprise.

Top Ad-Tech Stocks with the highest revenue growth rates in Q2

Chart: Top Ad-Tech Stocks with the highest revenue growth rates in Q2

YCHARTS

fuboTV led the ad-tech sector with the highest revenue growth rate in the recent Q2 results. The company's revenue grew by 70% YoY to $221.9 million. North American revenue grew by 65% YoY to $216.2 million. For the next quarter, it expects North American revenue from $200 million to $205 million, representing a YoY growth of 29% at the mid-point of the guidance.

The company also announced that it would place Fubo Gaming under strategic review due to the changing macro environment. David Gandler, co-founder and CEO of the company, said, "We recognized that the market has changed and therefore, we have made the decision to place fubo Gaming, our online sports wagering business under strategic review. We will no longer pursue this opportunity on our own and are exploring the best path forward to scale the business. We look forward to continuing to update you as conversations progress." The market reaction was positive following the strong results and the announcement on gaming.

The company's first investor day on August 16th drew interest as the stock closed the day with 45% gains. The company's CFO, John Janedis, said, "We continue to work towards long-term targets of adjusted EBITDA profitability and positive cash flow in 2025, and the Fubo flywheel will help us track towards that goal, as we execute a plan of controlled growth, alongside margin expansion."

Quarterly Revenue Surprise

Chart: Quarterly Revenue Surprise

YCHARTS

DoubleVerify has crushed the analysts' revenue estimates by 8% in the Q2 results and leads the ad-tech sector. It was followed by PubMatic, which beat analysts' revenue estimates by 4%. PubMatic's Q2 revenue grew by 27% YoY to $63 million, and the company reported an adjusted EPS of $0.23, which beat the analysts' estimates by $0.08. The company's CFO, Steve Pantelick, said, "We saw broad strength in the Americas region, led by fast-growing ad formats CTV, online video and mobile, and continued momentum in Supply Path Optimization." The company also benefitted from the diversified portfolio of advertisers from over 20 different verticals.

Top Ad-Tech stocks with the highest revenue growth estimate for Q3

Chart: Top Ad-Tech stocks with the highest revenue growth estimate for Q3

YCHARTS

The Ad-Tech stocks are expected to show strong growth rates in Q3. IAC leads the sector, with the analysts' expecting its revenue to grow 44%, followed by fuboTV, which is expected to grow 37%, and DoubleVerify is expected to grow 32%. Advertisement measurement and analytics company DoubleVerify shares got listed in April 2021. The company's revenue in Q2 grew by 43% YoY to $109.8 million. The company's CEO, Mark Zagorski, said, "We delivered an outstanding second quarter and surpassed our expectations for growth and profitability fueled by record Activation revenue and continued momentum on Social and CTV platforms," The company also raised the full-year revenue guidance from a 33% YoY growth to 35% YoY growth of $449 million at the mid-point of the guidance.

Top Ad-Tech stocks with the highest revenue growth estimate for Q4

Chart: Top Ad-Tech stocks with the highest revenue growth estimate for Q4

SEEKING ALPHA

The Trade Desk leads the sector with the strongest expected revenue growth rates for Q4. The company's revenue in the recent quarter grew by 35% YoY to $377 million and beat analysts' revenue estimates by 3%. Truist analyst Youssef Squali, said in a note to the clients. "Strength in [connected TV] and record new client relationships drove this performance, which is likely sustainable in [second-half 2022] given 100% Solimar adoption, continued momentum in CTV, in shopper [marketing] and in international, with the additional kicker of political spend around the midterms."

Top Ad-Tech stocks with the highest revenue growth estimate for the current fiscal year

Chart: Top Ad-Tech stocks with the highest revenue growth estimate for the current fiscal year

YCHARTS

For the current fiscal year, analysts expect fuboTV to have the highest revenue growth estimate among ad-tech stocks. It is followed by IAC, which analysts expect to grow by 49%, and DoubleVerify is expected to grow by 35%.

Ad-Tech Stocks based on forward P/S ratio

Chart: Ad-Tech Stocks based on forward PS ratio

YCHARTS

Ad-tech stocks are trading at a very low valuation. We can see from the above chart that the majority of the ad-tech stocks are trading at a forward P/S ratio of below 5.0.

The P/S ratio chart below shows how Meta Platforms and Netflix are trading at a discount compared to the past five-year period. Companies like Netflix lost cash in 2019 when the company was building the original content pipeline. Now, the management is guiding for free cash flow of $1 billion this year and 'substantial' free cash flow in 2023.

P/S ratio chart of Meta Platforms and Netflix

YCHARTS

Top ranked Ad-Tech stocks based on Free Cash Flow Margin

Chart: Top ranked Ad-Tech stocks based on Free Cash Flow Margin

YCHARTS

Magnite leads the ad-tech sector with the highest free cash flow margin of 27%. It is followed by The Trade Desk, which has a free cash flow margin of 23% and DoubleVerify has 18%.

Top ranked Ad-Tech stocks based on Net Profit Margin

Chart: Top ranked Ad-Tech stocks based on Net Profit Margin

YCHARTS

Meta Platforms leads the ad-tech sector with the highest net profit margin. The company's revenue declined for the first time in Q2. Revenue fell by 1% YoY to $28.8 billion. The company is looking to reduce its expenses due to the revenue slowdown to maintain strong margins. For the full year, it expects total expenses of $85 billion to $88 billion, down from the last quarter's guidance of $87 billion to $92 billion and the prior estimate of $90 billion to $95 billion.

Royston Roche, Equity Analyst at the Tech Insider Network, contributed to this article.

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This article was written by

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Beth has over ten years of experience in competitive and product analysis in the tech industry dating back to 2011. Her experience comes from a decade of analyzing tech companies, tech products, and startups, and when tech overtook oil in 2010 as the world’s most valuable industry, Beth was at the forefront of this change in Silicon Valley. Beth's tech conference appearances date back to 2014 and her analysis began garnering press in the same year. She is known for making bold calls on tech stocks and offers weekly free analysis that leverages her ten years of experience in the private markets.

She cares deeply about individual investors having access to the same quality of information as institutions -- especially in regards to the tech industry -- and utilizes both fundamental and technical research to understand and navigate both bull and bear markets. Beth uses a unique methodology to carefully form a thesis and this has placed her on the map as one of the best tech analysts in the market. This is not a methodology that the traditionally trained can learn or repeat. Her results and quality of analysis speaks for itself.

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Kindig has spoken at many tech conferences, including the Android Developers Conference, GamesBeat, Advertising Week NYC, Tech Week Chicago, and BlackHat. She has been published in Forbes, MarketWatch, Venture Beat, MediaPost, AdExchanger, and the International Association of Privacy Professionals. She has appeared on CNBC, Fox Business News, Bloomberg TV Asia, NPR, The Motley Fool podcast, MarketWatch, This Week in Startups and more discussing her stock analysis.

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