Investors are falling in love with digital ad stocks again — but they could be overlooking some massive flaws in the industry

the trade desk

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After a rocky few years, adtech stocks are soaring once again.

Shares of The Trade Desk, the sector’s star performer with a market capitalization of more than $36 billion, were trading up 206% this year through November 18. Magnite, the newly formed company from the merger between Rubicon Project and Telaria, was up 34%; bank-focused adtech outfit Cardlytics soared 79%.

Even French adtech company Criteo, whose stock has largely traded downwards over the past three years, was up 5%. 

Overall, according to an analysis by investment bank LUMA Partners, adtech stocks are up 57% so far this year, based on the median average of those four stocks. Since March 24, as the pandemic took hold, those stocks are up 165%. By comparison, the S&P 500 is up around 10% so far this year.

Read more: Here are the 18 hottest adtech companies of 2019

The adtech rally flies somewhat in the face of trends at the beginning of the pandemic, when many advertisers hit pause on spending before spending started recovering around May. Moreover, with tough competition with Google and Facebook for digital ad dollars and a string of high-profile casualties in the space, investors had long turned their back on the adtech sector.

To be sure, much of the resurgence in adtech stocks has little to do with the sector itself and more with the wider macroeconomic environment, experts say. Nonetheless, two pandemic-led trends — a rise in digital content consumption and the shift toward e-commerce — has also revived some investor excitement in the space.

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As a result, the ground now appears fertile — after a barren period — for more adtech initial public offerings. PubMatic, a supply-side platform, filed last week to raise $75 million in an IPO. Ad verification company DoubleVerify is preparing an IPO for early next year, Bloomberg first reported last month. PubMatic declined to comment for this article, citing its SEC-mandated quiet period. A spokesman for DoubleVerify declined to comment.

With an eye on The Trade Desk’s current market valuation, many adtech companies see IPOs as a more cost-effective way of raising funds than venture capital, which has cooled on the space, said Abeed Janmohamed, director of M&A advisory joint venture Waypoint Partners and VOGL.

Read more: Advertisers are about to start spending again

MediaAlpha, an adtech company that focuses on the insurance sector, went public in October. Its share price has increased 16% to $39.37 and the company has a market capitalization of more than $2.3 billion. 

“With favorable market conditions and strength in the InsureTech sector, which is really where we play, we felt the time was right to move forward with our IPO,” emailed Steve Yi, MediaAlpha CEO. “But the real driver is our fundamentals — our core business is strong, even in these challenging times. The market will typically recognize that regardless of the sector you’re in.”

Adtech is riding the coattails of the broader tech sector

The wider technology sector’s strong performance — with S&P 500 tech stocks up more than 30% so far …read more

Source:: Businessinsider – Finance

      

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