Hello everyone, here is StableView Asset Management’s first public newsletter. Previously all of our models and analysis have been for internal purposes only, and all of our previous newsletters have been for clients only. Typically, I have only put out very high‐level reports to clients as I would get feedback that they didn’t want anything more detailed than a summary view, given that they pay me to manage their money.
However, ever since I first started going on BNN and sitting on panels at conferences, I have been getting requests to put together a public newsletter. So here it is. I welcome any CONSTRUCTIVE feedback.
Given that there is a very wide range of people who have signed up for the newsletter (I am shocked at how many people are on this list). I want to ensure that the newsletter is readable and understandable by as many people as possible. Therefore to that end, I am taking the approach that this will fall somewhere between a super‐detailed analyst’s report and a high‐level commentary.
Further, this will be focused on companies that I believe are excellent investment opportunities. I will be writing these when I believe there is a good company and a strong buying opportunity.
In the future, I may expand this to provide some of the macro themes and whatnot, but for now this will be focused on companies that I believe are excellent investment opportunities with exceptional upside potential. For full disclosure, these will typically be companies that StableView Asset Management’s funds and clients own. Some people call this “talking up your book” – so be it. I call it: “putting your money where your mouth is.” Would you listen to me if I didn’t have money in these positions?
Finally, these companies will typically be in the Technology and Knowledge‐based industries as well as some special situation investments. There are a million places to get reports and newsletters on resources and commodities, but there are very few places to get a deeper insight into Technology and Knowledge‐based companies. Since we are investment leaders in this space, I think I will stick to my knitting and focus on these areas.
So, without further ado here is the first company in our first public newsletter:
AcuityAds (V.AT)
We believe that AcuityAds is poised to double over the coming 18 months. Dependent on how strong the Q4/16 numbers are this could be revised upwards.
Summary of investment thesis and key drivers:
We believe that AcuityAds is poised to double over the coming 18 months. Dependent on how strong the Q4/16 numbers are this could be revised upwards.
I believe that AcuityAds’ price has a long way to run from current levels – analysts’ current consensus 12‐month target price is $2.97 for a potential gain of 45.6%. We believe the analysts are materially underestimating both organic revenue growth as well as the value of the acquisition. As such our target is materially higher, and we believe that AT.V is undervalued relative to peers and on an absolute basis.
Further we estimate that revenues are growing faster than the street understands. Our thesis is that Q4/16 revenues will be higher than $15M while the highest analyst prediction is $12.5M. We believe that this name is just getting to be understood by investors. Revenues, acquisitions and street recognition will be key drivers to price appreciation over the next 18 months (and beyond).
Our history of predicting success for AcuityAds:
I have been talking about AcuityAds for years and have been an investor in AcuityAds for longer. My first public announcement supporting AcuityAds was on BNN on March 23, 2015 (it was $0.99 then for a gain of 106% as of Nov 11, 2016). You can see the clip here: http://www.bnn.ca/video/canadian‐tech‐disruptors~575980)
I spoke about it again on August, 28th, 2015 (it was $0.95 then for a gain of 114% as of Nov 11, 2016) you can see that piece here: http://www.bnn.ca/video/top‐small‐cap‐tech‐stocks‐to‐buy‐now~691716
The last time I discussed AcuityAds on BNN on May 11, 2016, it was one of my top picks (it was $1.28 for a gain of 59% as of Nov 11, 2016) you can see it here: http://www.bnn.ca/video/colin‐fisher‐top‐picks~868741
What does AcuityAds do?
They help marketers buy advertising space on the internet.
Bulk Ad Buying: The old dumb way of buying ad space.
There are two essential ways of buying ads space – the old dumb way which was to buy ad space in bulk and plaster your ads all over internet sites regardless of who is looking at the page. This approach would lead to men getting ads for women’s lingerie and women getting ads for Viagra. Not the best use of your marketing dollar.
Programmatic Advertising: The smart way of buying ad space – targeting the right audience.
Acuity Ads helps marketers buy internet advertising space using AcuityAds’ programmatic marketing platform, powered by machine learning algorithms.
AcuityAds’ technology can figure out who is looking at a web page and send a more appropriate ad targeted to that person.
There are two ways to use AcuityAds’ technology. The full‐service method which has an account manager that helps you use their services. The other is a self‐service platform – you use their platform directly to target your advertising spend and who you are targeting.
The easiest way to think of this is using a stockbroker or using an online trading account.
The self‐service model is the model which will have the greatest scalability and the highest growth potential.
Why is AcuityAds doing so well?
Imagine you opened an online trading account and as part of that account they gave you some proprietary trading algorithms that made you money. You put money into your account, and you got really, really good returns. You would want to put more money into your account.
Then consider that those algorithms learned and got better at making you money and your returns got better over time. You would want to continue using that trading platform’s services.
This solid ROI is what is happening for clients of AcuityAds. They get the use of AcuityAds’ marketing platform which comes with a machine learning algorithm, which gets better over time, and continually improves AcuityAds clients’ return on investment.
Competitive advantage
AcuityAds has many competitive advantages – but one of THE core advantages is their resident Egg‐Head in Chief: Dr. Nathan Mekuz, Ph.D. His learning algorithms are key to the positive results that clients are seeing.
He has a Ph.D. in machine learning, and their algorithm is doing quite well. How do I know this? Easy, their clients keep signing up for their services and they keep spending more money. There is no better due diligence than seeing clients continuing to buy and spend more each time they do.
140 Proof Acquisition
If there was any doubt that this company knows how to make an accretive and shareholder friendly acquisition ‐ the purchase of 140 Proof should put that to rest. If you break it down, they bought the company for a million dollars and an earn‐out. The earn‐out is structured so that they don’t make any earn‐out unless there is a NET contribution to AcuityAds – meaning that they make money from the earn‐out only if AcuityAds makes net profit contributions. So the truth is we want the full earn‐out to happen because it means that AcuityAds will have made a ton of dough (so much money that my target price would have to be closer to $10).
Future acquisitions
Given how well they have done with their first acquisition I am very comfortable that the company will continue to exercise prudence and continue to be good stewards of shareholder’s capital. I am not worried that they will need to go to market before making an acquisition. Additionally, I believe that management, who are the largest shareholders, will continue to make acquisitions that are accretive and ensure value for shareholders.
Summary – Why I think AcuityAds is great investment opportunity now
AcuityAds is continuing to show strong top line and bottom line growth. They have demonstrated that they can make substantial strategic acquisitions that will drive shareholder value. AcuityAds is a company with excellent management and board of directors. They are leaders in a growing industry and have both an organic growth strategy, driven by a leading marketing platform with cutting‐edge technology and learning algorithms, and an acquisition strategy that is proving to be strategic and accretive.
I continue to believe the current share price is undervalued and that the street still does not understand the organic growth potential of the AcuityAds, nor how powerful their acquisition strategy will continue to be.
Best regards,
Colin Fisher
President and Portfolio Manager
StableView Asset Management
Disclosures
StableView received a small presenter’s fee from AcuityAds when they participated in the StableView Tech16 and Tech15 events. StableView’s
clients, funds, and pools own shares in AcuityAds. We may sell or buy more at any time without updating the reader of this note. We may or may not do advisory work for AcuityAds in the future – currently, there is nothing contemplated. This is not intended as a solicitation or offer of securities. StableView Asset Management makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to StableView Asset Management that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company. We may change our recommendation on this stock and are under no obligation to notify you the reader of any change. StableView Asset Management may buy more securities of the Subject Company, or sell securities, at any time without notifying the readers of this newsletter.