2013 | 2014 | ||||||
Price: | 5.00 | EPS | $0.23 | $0.31 | |||
Shares Out. (in M): | 39 | P/E | 21.0x | 16.0x | |||
Market Cap (in $M): | 197 | P/FCF | 0.0x | 0.0x | |||
Net Debt (in $M): | 0 | EBIT | 19 | 25 | |||
TEV (in $M): | 125 | TEV/EBIT | 6.5x | 4.9x |
Sign up for free guest access to view investment idea with a 45 days delay.
Stock price = $5.00 Market cap = $200m Net cash = $73m EV = $125m 2014E Revenue = $121m 2014E EBIT = $28m
TechTarget is a unique online advertising business that is currently very undervalued due to its cyclical component near the bottom of a business cycle and the lack of recognition by the market of its two-pronged growth strategy. The company operates a network of one hundred websites focused on the entrprise IT buyer, which generate about eleven million visits per month. Each website addresses its own IT topic and CIOs visit these websites to get information when they are looking to make IT purchases. The content on the websites comes from three different kinds of sources. First, the vendors of these kinds of products post white papers on the sites to inform the buyers how their products would help address the IT problems that they have. Second, TechTarget has its own editorial staff that writes informative articles for these websites. Finally, TechTarget provides third party content to its readers to help round out the information they can find on the sites. TechTarget's network is very unique and would take a potential competitor a lot of time and money to duplicate. Now that I've described where the sites get their content, how does the company make its money? Traditionally the company has sourced its revenue from advertising on its sites by the vendors who are hoping to sell technology to the enterprise IT buyers. The company has been able to sell banner ads at very high prices due to the captive audience of IT buyers with lots of money that they are looking to spend. The company has just launched a new product that will be subscription based and perhaps take away some of the traditional cyclicality of the business.
TTGT is undeniably a cheap stock. EV / EBIT is only 5.9x on 2013 numbers. So why is the company so inexpensive? I think people are looking at recent business trends and extrapolating into the future. TechTarget's business is driven by the marketing budgets of its customers, which have been under pressure due to the weakness in the worldwide economy. TTGT's revenue declined 5.5% from 2011 to 2012. I would posit that this glass is half full - you are getting a quality asset at a cheap price based on the bottom of the business cycle. The company has plenty of operating leverage with its 72% gross margins and fairly fixed operating costs when revenues do rebound. The second thing that investors are missing is the two growth drivers that are currently occuring in TTGT's business. The first has been going on for a couple of years and that is an international expansion by the company. 80% of the company's business is domestic and has been impacted by the aforementioned econmic weakness. The other 20% has been growing at a 50% clip as TTGT has expanded into geographies where they were not in previously. International penetration is still very low so the company expects to grow internationally at a 30%+ pace for the next several years. Finally, the company has been introducing new products over the past couple of years that have served to raise the price of advertising to the customers that have used them. TTGT has just launched a new product that allows the inside sales teams at its customers to see which firms have lots of activity on TTGT's websites indicating that they are probably looking at a technology buy. The revenue model on this new product will be subscription based so the idea is that a) it will provide a recurring stream of revenue and b) it might garner the company a higher multiple.
show sort by |
# | AUTHOR DATE SUBJECT |
---|---|
22 | |
Needham and Jefferies launched coverage today of TTGT with $11 and $12 price target respectively. Both of their numbers look pretty doable by the company for 2014 and 2015. | |
21 | |
we added after talking to the CEO yesterday. the main source of revenue is associated with its database of 13.5m registered vendors vs traffic. the company only has about 10% of revenue that is related to banner ads / branding. a drop in traffic could be an issue for this revenue but the company is nowhere close to being sold out on its available inventory of impressions so traffic going up or down marginally doesn't impact this revenue line much either. bottom line is that the company has historically not monetized its user base and traffic well and the IT deal alert is a big step in improving that. | |
20 | |
http://www.businesswire.com/news/home/20140619006404/en/TechTarget-Reaffirms-Q2-2014-Full-Year-2014
Company reaffirms quarterly and full year guidance and basically says what we suspected, their revenue is not directly correlated to traffic in general and Google search traffic in particular.
Hope the Street Sweeper covered their short earlier today. | |
19 | |
BTW the article also clearly means to imply that the insiders knew about the traffic changes and were dumping stock, but I am pretty confident that the secondary was filed before the Panda changes and were due to Polaris liquidating its 2001 and 2003 vintage funds that held TTGT shares and were already running on extensions from their 10 year lives. | |
18 | |
Copia, I do think when they give the 90% organic figure, that means that only 10% of their traffic is from paid sources such as Google PPC ads. So that includes revenue from algorithmic search results.
That said, I think that article was dumb. TTGT is not overly SEO dependent and its revenue model does not depend on impressions like DMD or clickthroughs/cookie stuffing like SALE. After all, if their revenue was shrinking while organic traffic was growing nicely in 2013 I am not sure if follows that the revenue will suddenly plunge if search visibility goes down. I think their revenue is largely dependent on the marketing budgets of big IT players and how much they are willing to spend to sponsor white papers and webinars and TTGT's direct sales execution and I don't think it is directly dependent on traffic. | |
16 | |
TTGT is under pressure today from an article in thestreetsweeper.org that says that Google's recent change to its search methodology will result in a 33% drop in traffic to TTGT's websites. Unfortunately what this article fails to mention is that 90%+ or TTGT's traffic is organic so it does not come through the Google channel at all. If let's say 9% comes through Google and that drops by a third, that is a 3% overall drop to TTGT. Compare this with the 35% rate that TTGT's organic traffic is growing year-over-year and you see the result on TTGT will be minimal. | |
15 | |
TTGT reported a big upside surprise to revenue and EBITDA in Q1 driven by the strength in their international business and IT Deal Alert. The stock reacted positively going from $6.35 to $7.80 over a three day period. The company then announced its long awaited secondary offering by the VCs, which served to drive the price down to $6.50. At the end of the day the offering is a positive as it will increase liquidity in the stock and bring onboard three new analysts from solid small-cap focused firms. In the short term, however, the stock got clocked, likely by people who were buying in the offering and wanted to price it as low as possible. | |
14 | |
Weak IT spending has been hurting TTGT for the past two years. It would be tough to verify, but the company is pretty adamant that it is not cannibalization. The core leads business gets to potential customers much earlier in the life of a deal so is complementary to IT Deal Alert which gets there when the deal is close to being consummated. | |
12 | |
Agreed. Hope we both make a lot more money on it... | |
10 | |
Since posting this idea originally much has changed with TechTarget's stock. The company did a self-tender, eventually buying 7.1 million shares of stock at $5 each. Then, on the third quarter conference call, the company CEO guided for 2014 revenues to be up at least 10% over 2013 revenue, which was significantly higher than Street numbers at the time. As a result, the stock moved to $7 per share versus $5 when I originally wrote it up. I am no less enthusiastic about the stock at these levels though. The main revenue driver, a product called IT Deal Alert, is ramping better than plan and will see 300% growth in 2014 at least. I believe the company can double its revenue over the next few years and at the same time, double its operating margins (due to a very fixed cost structure), leading to a 4x growth in profits. This will drive the stock well into he mid-teens and perhaps, t0 $20 a share. | |
8 | |
I don't think that IT Deal Alert is so much cheaper than the core leads product and also very few customers are on it now so I don't think it is cannibalization. Big tech (IBM, oracle, etc) has been doing quite poorly so I believe their marketing budgets have been hit. i am monitoring Greg closely for more positive body language... | |
6 | |
thanks for your reply | |
5 | |
I exclude stock comp and goodwill amortization from my calculation of EBIT. The reason for goodwill is that the company has already paid the price for the acqusition in either stock or cash, and that is reflected in a higher enterprise value due to lower cash and / or more shares outstanding. On the stock comp front, the shares that the company gives its employees are reflected in a higher share count and are thus dilutive to EPS, so I do not ding them twice by charging them on the P&L as well. I know this is an unpopular view on VIC but that is the way I look at things. Not sure what you mean by including or excluding deferred revenue changes on the P&L, but I do not do that in either case.
Jeff | |
3 | |
Thanks for the kind words. Regarding management, I think that the CEO is excellent. I have met him once and spoken with him a few times and I think he has a terrific grasp of his business and a clear vision of where he wants to take the company. On the FCF front, I am taking EBITDA and subtracting CAPEX to get to this number. 2012 FCF will come out near $15m so I am expecting a sharp increase in this metric over the next two years. This is based on 10% revenue growth each year with modest increases in opex so he 72% GM drops a bunch of income to the EBIT line. Of course, the biggest assumption is the revenue growth. I am expecting continued international growth, some traction with the new product, and some normalization of the tech marketing environment to get to these numbers. Let me know if you have any more questions. |
Are you sure you want to close this position TECHTARGET INC?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea TECHTARGET INC for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
What is wrong with message, "".