Description

Viant is a founder-owned ad tech business that has 77% of its market cap comprised of cash and a significant catalyst to unlock the value of its balance sheet. 

Despite registering $24.7m, $31.8m, and $37.1m in adjusted EBITDA in 2019, 2020, and 2021 respectively, the market is only attributing $62m in enterprise value to a company that was worth $4bn following its IPO in 2021.

Like many businesses in the tech space, Viant’s cost base grew as they anticipated continued top line growth in 2022.  However, they saw a significant and rapid deterioration in the digital ad market last year that led to declining revenues for the last three quarters.  This led to a $6.1m EBITDA loss last year.  With the ad market stabilizing this year and Viant right sizing its costs, the company is guiding to positive EBITDA in Q2 and accelerating top line growth as the year progresses.  Assuming current trends persist, we believe Viant can earn $12m of EBITDA this year which values the company at ~5x EBITDA that is likely to grow significantly in 2024.  Viant averaged over 25% EBITDA margins in 2019, 2020, and 2021 which are likely the normalized level of margins for the business.  On this year’s revenue those margins represent $34m of EBITDA.  Viant trades at <2x that potential EBITDA.

While Viant is compelling as a standalone investment, they have been on the hunt for an acquisition over the last year.  Digiday reported that Viant is in talks to acquire MediaMath, a leading competitor with Fortune 500 clients.  This transaction would transform Viant from a mid-tier player in a niche part of the ad buying market into a viable competitor to The Trade Desk ($36bn market cap).  While it is uncertain whether the deal will happen, a deal for MediaMath or a similar competitor could unlock significant cost synergies by collapsing the tech stack and eliminating G&A and S&M expenses.

For reference, Viant’s current capital structure is below.  At its current price, Viant has a substantial margin of safety due to its cash-rich balance sheet:

Viant’s Business

Viant operates a demand side platform (“DSP”) called Adelphic.  A DSP is a software tool that helps ad buyers purchase ads across the open web (everything that isn’t Google, Amazon, and Facebook), connected TV (Hulu, Disney+, Netflix, etc.), and other channels like podcasts, digital billboards, etc.  The ability to buy across all of these formats makes them one of a dozen “omnichannel” DSPs.

Viant has two differentiators within the DSP market.  The first is its “people-based” platform.  Viant has put together one of the largest first-party databases in the industry called the “Household ID” (“HHID”).  Viant can leverage this huge database to connect every device you use to your address and know exactly who they are advertising to.  Whereas most DSPs target individuals using cookies, Viant is able to target based on this owned dataset. Viant’s HHID is poised to be a competitive advantage as Google begins the process of eliminating cookies in Chrome next year.  If Viant’s database and technology work better than existing cookie-based technology, they could take share from competitors like TTD.  Every 1% share that Viant can take from TTD would represent 10% top line growth that would be highly accretive to earnings.  Nothing is certain with such a quickly changing environment, but the opportunity is huge.

Even today, Viant provides data on how many people it can identify through its household ID vs. traditional cookies and it isn’t even close.  Viant can identify 81% of ad targets vs. traditional cookies at 21%.  The difference is particularly acute in CTV and Apple Devices (Apple eliminated cookies from iPhones in 2021), where most of the growth and the highest value users/ads are placed.  Presence below refers to the ability of each form of identifier to pinpoint a user’s identity

Viant’s second specialty is selling to middle-market firms.  The biggest player in the DSP space outside of the “walled gardens” of META, GOOGL, and AMZN is The Trade Desk.  Due to high levels of minimum spend, low levels of customer support, and an orientation towards large agencies and brands, TTD doesn’t compete in the middle market.  Viant has been able to gain a foothold in the middle market by providing a great solution with superior customer service.  As one of our experts said: “as a small to mid-sized agency with 100 people, having a high touch partner is really important because we don’t have the manpower to do it all alone”.

Financial performance

Viant’s financial story is complicated by the fact that they are shifting customers from a fixed-price model to a percentage-of-spend model that’s more common in the ad tech space.  Fixed-rate customer revenue is booked on a gross basis (i.e. including the spend on advertising).  Therefore, when fixed rate customers reduce spend, it disproportionately impacts reported top line.  Below we can see that actual advertiser spend on Viant’s platform has been much stronger than revenue growth.  Viant expects that these numbers will converge this year and we’ll start to see more uplift in sales growth. 

Based on these numbers and similar commentary from ad tech peers, it appears that ad spending has troughed, and the market has stabilized.  The company noted on their most recent earnings call that “As we progress through 2023, we expect to see improving revenue and contribution ex-TAC growth rates.”

We assume Viant exits Q4 at 20% growth rates with more normal seasonality in the ad market and continues to grow strongly into 2024.  We assume COGS at 20% of revenue ex-TAC and other expenses down mid-single digits in line with guidance, then growing 5% thereafter.  On a standalone basis, this means that Viant can achieve over $44m of EBITDA by 2025:

MediaMath Opportunity

On June 7th, Digiday reported that Viant was in talks to acquire MediaMath.  The article mentions that the sale could be closed “within weeks”.  The timing makes sense since Viant has long said it was looking for acquisitions and they upsized their revolver from $50m to $75m on April 4th.  They had always said they were waiting for valuations to come down and sellers to become more realistic. 

While a deal is far from certain, MediaMath appears to be an attractive, distressed target for Viant – it is one of the original DSPs, but financing mishaps and botched sale efforts since 2020 ended with the company getting emergency financing in April 2022 from Searchlight Capital Partners that wiped out cofounder and employee equity.  In addition, founder and CEO Joe Zawadski was forced out.  Full details of the saga were outlined in an excellent Business Insider article from March.  After looking for a buyer since 2020, Searchlight and MediaMath may finally have to accept a deal that hands over a lot of value to Viant.

Of course, we don’t know the contours of the deal, how it would be financed, or if it will even happen.  However, Viant’s controlling shareholders – Tim and Chris Vanderhook—have a long and solid track record of buying and selling businesses to create value:

• 2016 Myspace acquisition: Purchased Myspace from Fox for $35m, an asset that Fox had purchased for $580m in 2006.  This created the basis for Viant’s Household ID
• 2016 Viant sale: The brothers sold a 60% interest in Viant to Time for $85m
• 2017 Adelphic acquisition: Viant purchased Adelphic, the basis for its omnichannel DSP technology for an undisclosed sum in 2017
• 2019 Repurchase of Viant: After Meredith bought Time, Meredith sold the 60% Viant stake back to the brothers for $25m
• 2020 Xumo sale: The brothers had created free TV platform called Xumo in 2011 that they sold to Comcast for $140m in 2020
• 2021 Viant IPO: The Vanderhook brothers took Viant public, raising $250m at $25/share, valuing the company at $1.5bn.  They had purchased Viant back from Meredith 15 months earlier for a $40m EV
• 2023 MediaMath (or other) acquisition: ?

These acquisitions, dispositions, IPOs, and other capital market transactions all demonstrate that the Vanderhook brothers have a very keen sense of markets and understand how to create value for themselves.  With 70%+ of Viant owned by the brothers, we believe that they will only do transactions that are highly accretive and strategically important for long-term value creation.

Conclusion

An investment in Viant represents ownership in a business for 5x depressed EBITDA that is on the cusp of re-accelerating.  In addition, Viant’s huge cash balance gives investors a substantial margin of safety while also presenting optionality for a transformative acquisition through a team with a decade of value creation.

Catalyst

• Return to top line growth and profiability for the core business
• Unlocking the balance sheet through highly strategic and accretive acquisition