By Philip van Doorn
Stocks of online advertisers have been crushed. But the group may roar back, benefiting committed investors
Are you a contrarian investor? Sometimes it seems everyone claims to be one, but it isn't easy, especially after a wipeout such as the one we saw on Sept. 13.
An investor who wishes to pay bargain prices to enjoy larger gains down the line needs the courage to jump in when other people are in panic mode.
Below is a list of companies in, or associated with, an industry that has taken it on the chin this year: online advertising.
Most of the companies in this group are expected to grow their revenues at a much faster pace than the broader market over the next two years.
Back to basics with Warren Buffett
Before looking at the online advertisers, it is a good idea to review the following, even if you believe you have heard it all before.
You have probably seen bits and pieces of the following from Berkshire Hathaway CEO Warren Buffett from his letter to shareholders summing up the conglomerate's results in 1986. Here's a longer version of it:
Common stocks, of course, are the most fun. When conditions are right, that is, when companies with good economics and good management sell well below intrinsic business value -- stocks sometimes provide grand-slam home runs.
Buffett then writes that Berkshire cannot predict stock-market performance.
What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
I bolded that last sentence. It is easy to suggest that people looking to bag outsized gains go against the grain when the market gives them the opportunity. It is far more difficult to have enough faith and patience to put the idea into practice.
As part of your own investment research, you should read Buffett's most recent letter to shareholders. All of his letters can help you. They are listed here.
The beaten-down online-advertising group
This idea resulted from a Twitter posting by Eric Jhonsa:
Jhonsa mentioned the semiconductor industry, whose stocks have been slammed this year as chip makers enter a downcycle, in the wake of pandemic-era shortages. Several of the largest manufacturers in the industry have had large recent cuts to their 12-month rolling consensus estimates for sales and earnings. Others have bucked the trend.
Jhonsa supplied a list of 21 stocks of online advertisers or companies that provide supporting software or services. These stocks have been hammered this year. For some, forward price-to-earnings ratios are now relatively low when considering how rapidly these companies are expected to grow. Analysts expect great things for the three stocks Jhonsa mentioned by ticker, as you can see below.
To look further ahead, here's Jhonsa's list, with consensus sales estimates for calendar 2022, 2023 and 2024 among analysts polled by FactSet. The 2024 sales estimates are available for all but two companies. The group is ranked by how much sales are expected to grow during 2023, based on the estimates:
Company Ticker Expected sales growth -- 2023 Two-year estimated sales CAGR through 2024 Estimated sales -- 2022 ($mil.) Estimated sales -- 2023 ($mil.) Estimated sales -- 2024 ($mil.) Market cap. ($mil.) Tremor International Ltd. ADR TRMR 28.7% N/A $303 $390 N/A $562 ironSource Ltd Class A IS 25.3% 23.4% $766 $960 $1,165 $2,716 Trade Desk Inc. Class A TTD 24.9% 26.0% $1,592 $1,989 $2,526 $28,351 Doximity Inc. Class A DOCS 24.7% 27.1% $408 $509 $659 $3,653 DoubleVerify Holdings Inc. DV 24.6% 24.1% $449 $560 $692 $4,709 Innovid Corp. CTV 24.6% 19.7% $130 $162 $186 $408 AppLovin Corp. Class A APP 20.2% 17.8% $2,975 $3,575 $4,131 $7,789 Inuvo Inc. INUV 19.5% N/A $89 $106 N/A $58 PubMatic Inc. Class A PUBM 19.0% 21.2% $279 $332 $410 $766 Zeta Global Holdings Corp. Class A ZETA 18.4% 20.2% $563 $667 $815 $1,321 Integral Ad Science Holding Corp. IAS 17.3% 19.8% $400 $470 $575 $1,265 Roku Inc. Class A ROKU 17.3% 21.6% $3,139 $3,682 $4,642 $8,216 Perion Network Ltd. PERI 16.2% 12.3% $629 $731 $794 $966 Snap Inc. Class A SNAP 15.9% 18.6% $4,635 $5,374 $6,523 $16,416 Digital Turbine Inc. APPS 15.3% 23.1% $767 $884 $1,163 $1,791 Pinterest Inc. Class A PINS 15.2% 17.7% $2,799 $3,224 $3,877 $14,333 Magnite Inc. MGNI 14.9% 17.6% $508 $583 $702 $988 Twitter Inc. TWTR 14.1% 16.7% $5,287 $6,034 $7,205 $31,941 Criteo SA ADR CRTO 13.8% 10.3% $973 $1,108 $1,184 $1,716 Alphabet Inc. Class A GOOGL 11.6% 11.9% $289,552 $323,097 $362,324 $625,503 Meta Platforms Inc. Class A META 10.2% 11.9% $117,850 $129,837 $147,512 $349,239 Source: FactSet
Click on the tickers for more about each company, including corporate profiles, news, financials and stock performance. Click here for Tomi Kilgore's detailed guide to the wealth of information available for free on MarketWatch quote pages
We used calendar-year estimates for a uniform set of numbers, as many companies' fiscal years don't match the calendar.
For companies for which consensus sales estimates are available through 2024, the table includes expected two-year compound annual growth rates (CAGR).
In comparison, companies in the S&P 500 as a group are expected to increase sales by a weighted 4.2% in 2023, with a two-year sales CAGR of 4.5% through 2024.
There is quite a range of companies on the list, by size. On the low end, Inuvo Inc. (INUV) has a market capitalization of only $58 million and is a penny stock, having fallen to 48 cents a share on Sept. 13 from 53 cents at the end of 2021. Among analysts polled by FactSet, only two cover this stock. All others on the list are covered by at least five analysts.
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09-19-22 0613ETCopyright (c) 2022 Dow Jones & Company, Inc.