January 19, 2023 - 11:55pm EST by
2023 2024
Price: 7.67 EPS 1.61 1.83
Shares Out. (in M): 72 P/E 4.76 4.19
Market Cap (in $M): 553 P/FCF 6.91 5.53
Net Debt (in $M): -114 EBIT 79 86
TEV (in $M): 439 TEV/EBIT 5.59 5.10

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Tremor International ADR (TRMR $7.67) is an ad tech roll-up with high margins and FCF conversion, a net cash balance sheet, addressing a large high-growth market (digital ad spending), with a unique strategy of providing end-to-end service, combining both demand side platform (DSP) for ad agencies and brands seeking to buy ads and sell side platform (SSP) for content publishers that will display those programmatic ad placements, whereas almost all of their major competitors do either one or the other.  About 50% of TRMR's clients use both their DSP and SSP capabilities together for an end-to-end solution.

TRMR operates in the "open internet" outside of the "walled gardens" of Facebook, Google, Amazon, etc., which accounts for about 76% of digital ad spending, with 24% happening in the open internet, which is slowly gaining share.   Connected TV (CTV) is the fastest growing segment in digital advertising and CTV is about 40% of TRMR's revenues now.  TRMR is HQ'd in Tel-Aviv, but most of its sales are in the US.  It has a London listing (1 ADR = 2 London shares) where it trades more actively than the US ADR that we own which IPO'd on 6/17/21 at $19.00.  Our avg. cost = $8.37. 

We estimate fair value at $15.00 which would be 7.5x EBITDA (ex-SBC) of $130M est. 2023, and 12x FCF of $80M.

Frustrated by a very low stock price and recently stalled organic growth (which on the Q3 '22 results call on 11/14/22 company CEO, Ofer Druker, blamed on cyclical factors and more of the recently challenged DTC (direct to consumer) in their business mix than their faster growing comps), we suspect that large shareholders likely pressured TRMR to hire Goldman Sachs to see if a buyer can be found, as reported by Sky News on 12/20/22:

The industry is consolidating as the smaller players seek scale and differentiated capabilities to compete with the first-mover industry juggernaut which is The Trade Desk (TTD $44.26, 28x EBITDA). We think a good buyer for TRMR would be Perion Network Ltd. (PERI $28.53) which is also HQ'd in Tel-Aviv, and has exhibited better organic growth with a different business mix, but needs to diversify away from Microsoft Bing (35% of revenues) where exclusivity expires in 2024.  PERI trading at 6.4x EBITDA on 2023 est., whereas TRMR is at 3.4x (using consensus est. of $175M EBITDA - SBC $45M = $130M)

VIC member Jamal wrote up PERI on VIC on 9/20/22,

also see Jamal's 4/29/22 write-up on Pubmatic (PUBM) for a bit of a primer on ad tech:

We think that the tech-wreck of 2022 and concerns over slowing ad spending in the face of a potential recession weighed on valuation for the entire ad tech sector, but with TRMR among the very cheapest in the group.

Given the net cash balance sheet, and the inherently cash-generative nature of this business, we are willing to take the risk that the macro winds might blow against it in the short to intermediate term.  Long term we think digital advertising, and the way in which ad tech companies like Tremor facilitate it, provides a long growth trajectory to exploit.


The tech-wreck of 2022 saw many former high-flyers crash down from incomprehensible valuations to become priced now more reasonably.  But, Tremor was already cheap as the year began and down further just became too cheap to ignore. 

The largest player in Tremor’s industry, The Trade Desk (TTD $44.26), is one of the only companies getting a premium valuation (11x sales, 28x EBITDA) in that field, and it may well deserve it given its first mover advantage and outstanding growth record in a business where scale begets scale.  But we don’t see this industry as a “winner takes all” opportunity, and we don’t suggest a premium valuation for TRMR, as just getting to a somewhat normal valuation should be a satisfying outcome, plus whatever growth the business likely generates over time.

And what exactly is this business?  Ad tech companies like Tremor offer “programmatic” ad buying/selling, which is fully automated using AI and algorithms, providing better targeting, better returns on advertising money spent, and all done in milliseconds.  From Tremor’s 2nd quarter earnings presentation, this slide below shows how Tremor operates both on the demand side for advertisers buying ads (DSP, Demand Side Platform) via their Tremor Video and recently acquired Amobee DSP, and also on the supply side via their Unruly SSP (Supply Side Platform) which sells ad space for publishers like News Corp.(which sold Unruly to TRMR).  Providing “end-to-end” service is a differentiator for TRMR which competes with DSP-only firms like Trade Desk and SSP-only firms like PubMatic.  Besides Tremor, there are only 3 other companies offering two-sided or end-to-end platforms and those are Perion, Outbrain, and Taboola, but the latter two are performance based (paid for clicks).  Ad tech firms like Tremor and Perion take a percentage fee (their “take rate”) of the ad spending on their networks and report revenue on a net basis as “Contribution Ex-TAC” where TAC means Traffic Acquisition Cost.

Technology-based businesses like Tremor have unique risks, particularly with regard to intellectual property and potential technological obsolescence, but at 3.4x EBITDA, 5.5x FCF, with a net cash balance sheet, 29% EBITDA margin, and having established meaningful scale and scope in a huge, fast-growing addressable market, we think this is a wise risk/reward ratio.

Laura Martin of Needham has done excellent work in the Adtech and Digital Advertising space.  We share the table below from her report entitled “Digital Advertising: The Case for Consolidation” on 10/18/22 to show how the field of players looks at the moment.  (Note that the EV and EV/EBITDA multiples shown for Tremor are too low because that table had yet to adjust for the $239M in cash spent on buying Amobee in Q3, so adjusting that would take EV shown below of $166M up to $405M.  Also sales and EBITDA estimates lowered after Q3 results reported 11/14/22)

RISKS:  Q4 report due 2/24/23, biggest quarter of the year, not hard to imagine a miss given cautious macro and CEO commentary. Longer term, while any  recession would be transitory, TRMR stll needs to prove that they can restart organic growth. Lastly, significant revenues are Cookies-based, and Google has stated a Cookies deprecation date in the 2nd half of 2023.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Rumored Goldman Sachs-led process, reported by Sky News on 12/20/22, might lead to a sale (although a similar rumor was reported (also by Sky News) in Nov. 2021 which spiked the stock from $18 to $22, with nothing coming from it).  Or organic growth re-established. 

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