Tremor International: Reasonably Valued, but Concerns Remain

Tremor International Ltd. (TRMR) provides services in the digital advertising field, including display, video, and CTV. The company provides customers with a demand-side platform (DSP), a supply-side platform (SSP), and a data management platform (DMP).

In this way, it serves both publishers and advertisers via its subsidiaries, Tremor Video, Unruly, RhythmOne, and Taptica. I am neutral on TRMR stock. (See Analysts’ Top Stocks on TipRanks)

Stock Price Decline

Tremor went public via IPO in June 2021. Since then, the stock is down nearly 18%. It is also more than 38% off its 52-week high. Investors were disappointed with TRMR’s Q3 earnings judging by the steep decline since release. The stock also has not been helped by macro conditions, which have punished small, growing tech stocks.

With inflation persistent, there is a higher risk of rising interest rates and faster tapering, which has caused a revaluation in many corners of the growth-tech sector. For its part, Tremor trades at a reasonable valuation currently. The current P/E is just 14.6x, while the forward EV-to-EBITDA ratio is just 5x.

There is concern about the company’s ability to generate substantial future growth in the highly competitive digital advertising space. Several major players and smaller competitors are all vying for the same customers.

A Comprehensive Solution

Tremor has made several recent acquisitions which allows it to offer a comprehensive solution to both sides of the advertising industry. Perhaps the most important was the purchase of Unruly from News Corp in early 2020. This essentially created the SSP segment, which works opposite of Tremor Video, the DSP.

The two platforms together can leverage data and may give the company an advantage over competitors who cater to only one side of the advertising equation. For example, The Trade Desk (TTD) is a demand-side platform that works with advertisers and their agencies. At the same time, Magnite (MGNI) and PubMatic (PUBM) operate only on the supply-side of the business by working with publishers. Tremor generates revenue from both sides.

Profitable and Growing Company

Tremor International is a net profitable enterprise, unlike many recently public companies, which should instill confidence in investors. In Q3 of 2021, the company posted $12 million in net income on $87 million in total revenue. This adds up to a respectable 14% margin.

Tremor is also generally cash from operations (CFO) positive, and Q3 was no different with over $44 million generated. Through the first three quarters of 2021, the company generated a healthy $121 million in CFO.

Topline revenue for Q3 was 55% higher than it was in the same period in 2020. Adjusted EBITDA came in at $42 million, a 116% increase over Q3 2020. It also represents an adjusted EBITDA margin that is very robust at nearly 48%.

The balance sheet also remains strong, with no long-term debt noted in the last report. The big question for investors is whether the company can continue to scale in a highly competitive environment with many major players.

Wall Street’s Take

Turning to Wall Street, Tremor has a Strong Buy consensus rating, based on three Buys assigned in the past three months. The average Tremor International price target is $30.67, implying 124.4% upside potential.

Summary

Tremor International has made several moves recently and is now able to offer a full stack of digital advertising solutions to both advertisers and publishers. The company is profitable despite just recently having gone public. Margins are strong, and the balance sheet is squeaky clean.

The stock has two areas of concern, however. First, the macroeconomic climate has turned against growth stocks. For how long remains to be seen. Second, Tremor faces incredibly tough competition.

As a result, investors should keep Tremor International on a close watch list for the time being.

Disclosure: At the time of publication, Bradley Guichard did not have a position in the securities mentioned in this article.