Adveritas hits high on global online fraud services

In focus

Adveritas (ASX: AV1) is growing its gravitas in the world of global online security punching high with the delivery of innovative SaaS cloud services to several major tech companies. Its focus on targeted advertising fraud has witnessed substantial growth in recent quarters.

The company’s primary product is TrafficGuard, which helps detect, mitigate, and report digital ad fraud, and prevents company advertising losses. It also has a multi-layer system that blocks copy and invalid traffic to websites, which it backs up with its proprietary mediation platform Nexus, which provides real-time analytics and reporting of online advertising data.

Social media, search engines, and online media are all mediums that rely on advertising revenue to drive their sales. With the increasing levels of competition in the space combined with scarcer advertising dollars, it should translate into higher pay for companies that advertise adjacent services such as fraud detection.  Considering the digital advertising fraud market is estimated to be around $65 billion, companies such as Adveritas, which provides solutions to advertising fraud, are set to witness significant increases in revenue in the coming years.

Adveritas remains at the forefront of tackling the issue and has won numerous awards in the space.  The company continues to provide software services to major customers such as William Hill and MyRepublic. As a result, revenue for the company continues to rise quickly, with annualised revenue coming in at 68 per cent higher for 2021. The company plans to improve products and services under its offering, which should help maintain positive momentum in 2023. The company, in the recent past, signed several significant new clients, including Singtel and JD.ID, among many others, and the trend is likely to continue into the following year. Meanwhile, for the year ending (June 2022), revenue increased by 251% to $2.5 million in annual recurring revenue cross-selling and consistent onboarding has resulted in significant gains for the company.

“The implementation of our growth strategy is delivering results with ARR currently up over 170% since 30 June 2021, and we don’t see growth slowing given our pipeline of potential new clients is the largest it’s ever been,” CEO Matthew Ratty says.

“Digital ad fraud is a serious and ongoing problem for many companies and industries around the world,” The rise of interest in our technology from companies such as Banco Santander, William Hill, Singtel, and Disney Streaming Services, reflects the value we create through our software.”

“Our new channels and scaling of our technology platform mean that we further increased our services to help new and existing clients avoid fraudulent traffic so they can maximise the return on their digital advertising.”

The company further outlined its strategy, stating it will continue to focus on blue-chip clients and has recently raised over $5 million to continue growing at a record pace. Revenue could quickly increase to $5-6 million during the next year if not head above $10 million as new sources of revenue result in a significant increase in sales. On the other hand, cash, in general, continues to be an issue as losses mount on the back of investments needed for expansion. Free cash flow might be a couple of quarters away. On the other hand, considering the growth trajectory, revenue could hit $100 million plus in a couple of years if major blue-chip clients are brought. At this point, liquidity would no longer affect operations.

Valuations also continue to be slightly expensive for the company, with the current market cap at $37 million and revenue at $2.5 million; the stock currently trades at around 15 times sales. Considering income is expected to grow in the triple-digits over the next year and probably for a couple of more years. With the prospects of big-name clients, valuations may, in fact, not be excessively rich. The current debt levels aren’t very high either, standing at AUD 2.9 million, and total liabilities at AUD 3.9, ensuring no significant default is on the horizon.

Furthermore, valuations are likely to be supported by margins, which usually hover around 20-30%, for cyber security firms. That could translate into significant cash flow in the future, which may justify a long-term price-to-earnings of about 25x. And considering a positive level of EBITDA may only be a few quarters away due to management’s prudent spending, investors are likely to be increasingly excited about the stock’s prospects.

But the digital advertising world is increasingly scrutinised as advertisers try to balance their digital presence. Returns on investments sometimes don’t live up to expectations, leading people to reassess whether they want to continue investing digital dollars on advertising platforms. A slowdown in revenue could occur if the global economy continues to roll over. But, the slowdown is not likely to significantly affect the company’s revenue stream in any significant way, as the product is becoming increasingly integral to the operations of those who rely on digital advertising. As a result, the future remains exciting, and the stock is likely to benefit over the next couple of quarters as a results roll, and new revenue may drive the stock price to record levels.

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