NetworkNewsWire Editorial Coverage: Brands are faced with myriad challenges to stay at the top of their game to capture share in their respective markets. Simple fact is that technology advances so rapidly in today’s world that it takes devoting considerable resources and deliberate strategy to effectively reach target demographics. The worldwide outset of the COVID-19 pandemic last March turned the marketing/advertising industry on its head, forcing brands to immediately adopt the latest digital technologies, colloquially known as adtech and martech, which gave a few small companies a big jumpstart to capitalize on the opportunity. A perfect example of this is DGTL Holdings Inc. (TSX.V: DGTL) (OTCQB: DGTHF) (Profile). Major international brands turned to the company for its proprietary artificial intelligence-driven marketing platform to reach potential consumers from an integrated platform. What COVID-19 did to accelerate everyday use of adtech and martech will not be undone as targeted digital is now the preferred solution. The trend is benefitting others active in the space, such as Perion Network (NASDAQ: PERI), the Trade Desk (TSX: TTD) (NASDAQ: TTD), Acuity Ads Holdings Inc. (TSX: AT) and Kubient (NASDAQ: KBNT).
- DGTL on track to reach cashflow breakeven in just 12 months post-acquisition of Hashoff.
- More than 6 out of every 10 Americans spend more time shopping online due to the COVID-19 pandemic.
- Latest on list of growing international clients is Suntory, the third-largest producer of premium distilled product brands worldwide.
- Similar companies in the adtech space are trading at up to 50x P/E ratio, while DGTL is trading at a mere 3-4x.
Welcome to the New World of Advertising
For more than a year now, businesses around the world have been shuttered and people told to stay home in a bid to shunt viral contagion. In a strange way, it may have been a blessing in disguise for many brands that were forced to take a forensic look at operating expenses to get the most bang for their buck. This was especially true for advertising and marketing budgets, the lifeblood to sales that keep a brand in business. With consumer spending making up the majority of economies, governments aggressively provided financial stimulus to households. To that point, advertisers needed to be more targeted than ever to get into the wallets of consumers, most of which were sheltering, working and shopping at home.
In order to stay in business, savvy brands recognized the need ditch traditional ad methods and transition to digital outreach. With fewer people traveling and out and about, billboards and in-store marketing were nearly moot points as spending habits changed. In a Bazaarvoice survey of more than 5,000 consumers across different countries, 49% of respondents reported that they shop more online now than pre-COVID, including 62% of Americans, 59% in Canada and 70% in Mexico. Companies are getting the point as evidenced in a Criteo study showing 70% of businesses surveyed concurring that marketing practices covering the complete customer journey became even more important since the outset of the coronavirus pandemic.
DGTL Holdings Inc. (TSX.V: DGTL) (OTCQB: DGTHF) is building a portfolio of B2B enterprise Software-as-a-Service (SaaS) in the digital media, martech, e-commerce and adtech sectors. Last year, the company put its growth strategy in motion with the acquisition of Hashoff, signaling management’s commitment to get on the leading edge of influencer marketing, a practice where people with large social media followings or “experts” in certain niches are hired to endorse products to their audience. As noted in an Influencer Marketing Hub presentation, this emerging market is a top priority for brands, with nearly 8 out of 10 companies allocating a budget for influencer marketing in 2021.
DGTL’s market entrance aligns with the nascent industry starting to hit its stride, climbing from just $1.7 billion in 2016 to $9.7 billion in 2020 with Statista forecasting influencer ad spending reaching $13.8 billion this year. Hashoff’s proprietary technology is in the thick of this market, providing clients unfettered access to more than 150 million content creators of various scale in all-encompassing regions.
The Hashoff platform is turnkey, using machine learning (“ML”) and artificial intelligence (“AI”) to allow client companies to comprehensively search and identify freelance content creators that best reach the target demographic, albeit at worldwide or a highly refined group, a service called CaaS (content-as-a-service) in ad nomenclature. Clients have their choice of Hashoff’s self-serve SaaS platform or leveraging the managed services offered by the company.
As Sales Spike, Cash Flow Breakeven Approaches
Leaning on management’s experience that includes leadership positions at Hearst, Google, Yahoo, LinkedIn, AOL Time Warner, RBC, Microsoft, RocketFuel and Facebook, DGTL is hitting its key performance indicators since the Hashoff acquisition. This pattern of success has again been put on display with the company releasing results from the latest quarter and nine months, ended February 28, 2021. DGTL reported revenue of $1.25 million for the quarter, up from $744,984 in the year prior quarter, a 68% improvement. For the nine months, revenue climbed 71% to $3.67 million from $2.14 million.
Even with a conservative estimate of no quarter-over-quarter growth for the final quarter of fiscal year 2021 (which ends May 31, 2021), revenue at Hashoff would extrapolate to $4.92 million in the first 12 months post-acquisition by DGTL. Importantly, DGTL management sees the potential to reach cashflow breakeven within the first year of Hashoff being part of its family. Cashflow breakeven, a point where operations are self-sustainable at the current level of incoming and outgoing cash, is a milestone that most upstarts in the adtech space never claim, much less only a year into executing the business model.
An Enviable Client List
Cash flow neutrality in 12 months is an impressive accomplishment for any young company. The milestone begs the question of what is next for the portfolio. Market participants have taken notice of both the DGTL team and its accomplishments, which has shone through in shares of DGTL increasing more than 200% since going public in August.
As investors look to DGTL, brands have shown an affinity to the Hashoff platform. Companies from a wide array of sectors have turned to Hashoff, including its key categories of consumer packaged goods (“CPG”), health care and retail — a trio of lucrative markets that should continue heating up as economies re-opening throughout the year. DGTL has made it a habit of providing investors with a steady news reel of activating campaigns for some of the best-known brands in the world. The DGTL client portfolio includes DraftKings, Door Dash, Vertone, Anheuser Busch-InBev, PepsiCo, Nestle, Post Holdings, Danone and Keurig-Dr. Pepper, Dunkin Brands, The Container Store, Ulta Beauty, Pizza Hut, Live Nation, The CW, Scribd, Syneos Health, Novartis and Quaker Oats to name a few.
Bourbon Giant on Board
Late in April, Hashoff added yet another global juggernaut to its client roster. Japan-based Suntory Holdings, the owner of Jim Beam, Maker’s Mark, Knob Creek and Basil Hayden, and third-largest producer of premium distilled product brands worldwide behind Diageo and Pernod Ricard, signed a SaaS agreement centered on video-based influencer content for a global market. A sign of its prescient decision making, video-based influencers are an upcoming component of influencer marketing and an alternative strategy the Hashoff has implemented effectively in other recent campaigns for global brand customers, such as PepsiCo.
A company like Suntory Holdings with its bevy of brands spanning food & beverage, beer, wine, spirits and health food speaks to the opportunity at hand for Hashoff to grow exponentially within one client. DGTL leadership is presently reviewing requests for more SaaS proposals. The demonstrated growth and speculative future expansion don’t seem to be reflected in the valuation of the young company yet. As management succinctly details in its presentation, industry comparables are trading at much higher multiples, particularly as a measure of enterprise value to revenue and price-to-sales ratio. Others in the asset class are trading 10 to 15x and even as high as 50x on price-to-sales, meanwhile DGTL is trading at approximately 3 to 4x sales.
Plenty of Pie to Go Around
With global advertising spend nearing $600 billion, there is ample opportunity for many companies to carve out market share. This is particularly true against the backdrop of a worldwide pandemic that caused a huge spike in demand for cutting-edge platforms while simultaneously completely reshaping the new norm for advertising and marketing.
Perion Network (NASDAQ: PERI) is a global advertising technology company that delivers holistic solutions across three pillars of digital advertising: ad search, social media and display/video/CTV advertising. CTV is skippable online advertising targeted to relevant content channels and/or audience groups. Perion cited CTV as a key factor for new customer acquisition and primary contributor to 11% increase in average deal size during the first quarter. Perion further proved the point that consumer trends are sticking, as average daily searches ballooned 45% to a record 17.7 million in Q1.
The Trade Desk (TSX: TTD) (NASDAQ: TTD) is a technology company that empowers buyers of advertising, while also championing the next-generation tech to phase out reliance on cookies. In addition to its comprehensive portfolio of products for self-service digital ad campaigns for publishing partners and enterprise APIs, the Trade Desk is always on the leading edge of market research. For instance, studies this year by TTD showed the rapid acceleration of American cord-cutting, celebraters of Ramadan in Indonesia will be shopping and eating from home this year, and 81% of Australians don’t feel in control of their online personal data.
Acuity Ads Holdings Inc. (TSX: AT) provides marketers a one-stop solution for omnichannel digital advertising. Its journey automation technology, illumin(TM), offers planning, buying and real-time intelligence from one platform, an integrated ecosystem of privacy-protected data, inventory, brand safety and fraud prevention partners. Acuity recently teamed up with the Interactive Advertising Bureau, a move that got the illumin brand front and center for the more than 650 leading media companies, brands and technology firms that are IAB members.
Kubient (NASDAQ: KBNT) is on a mission to transform the digital advertising industry to audience-based marketing via its next generation cloud-based infrastructure that enables efficient marketplace liquidity for buyers and sellers of digital advertising. Kubient went public in August in an upsized IPO selling 2.5 million shares at $5 each. Shortly after, the company said it engaged investment bank Lake Street Capital Markets to cull the adtech ecosystem for strategic investments or potential M&A options to grow its footprint.
In more than one way, COVID-19 blindsided the world. One result is an idiosyncratic market moment in which small tech firms were on a level playing field with much bigger ad companies, establishing their brands in a hurry and landing global corporations as clients. These are now true growth stocks instead of speculative plays. What happens next may be equally interesting as these smaller companies now have a foothold that incumbents have to figure out how to compete with.
For more information about DGTL Holdings Inc. (TSX.V: DGTL) (OTCQB: DGTHF), please visit DGTL Holdings Inc.
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