Unpacking the technology

To understand programmatic advertising, let’s start with the traditional model of advertising for marketers. Once limited to a few options of television, newspapers, and magazines, marketers that wanted to reach a broad audience would work under contract to display the ads, reaching most audiences from a “mud on the wall” approach. As media channels are now fragmented into many platforms, it’s difficult for marketers to achieve similar results. Just as stock traders that used the open outcry system — yelling at each other in trading pits — had to transition to digital trading with the invention of digital exchanges, marketers must follow suit with programmatic advertising. Marketers must become highly strategic about where to put ads because of media fragmentation. This is the problem The Trade Desk (NASDAQ: TTD) solves.

The advertising exchange developed by The Trade Desk allows marketers to choose the specific audience from several metrics, allowing for a maximized return on investment (ROI). Selling advertisement impression availability — fancy language for selling ads — to marketers on an open exchange. This technology gives marketers control as to when, where, and how many times an ad will be displayed across several media channels by bidding for specific opportunities.

Solid results

Trade Desk delivered second-quarter revenue in 2019 of $159.9 million, a year-over-year increase of 42%. Earnings per share increased 37% year over year; the company has beaten estimates on every quarter for over two years. What separates The Trade Desk from many competitors is within the financials. Positive cash flow over the trailing twelve months of $59.7 million and a net income margin of 17% in the recent quarter gives The Trade Desk an ability to grow without relying upon debt.

Omnichannel — a buzzword for connecting sales channels — spending was up 47% between in-app, video, and web advertising — video and in-app taking most of the growth at 50% and 63% respectively. Two of the most promising channels for The Trade Desk were connected TV and audio, both up over 200% from 2018. After raising guidance on both revenue and earnings per share for 2019, investors should be left with a warm feeling and confidence that growth will continue.

Just the beginning

As the advertising market is quickly converting from analog to programmatic, investors will regret missing an opportunity to capitalize on this industry shift. Growth in programmatic advertising in 2019 is expected to reach $60 billion per a report by eMarketer. By 2021, spending is expected to reach $81 billion within the United States alone. The specific model of The Trade Desk is hard to beat. A highly effective proprietary software, strong fundamentals, and a 95% customer retention ratio in the last three years are building a solid foundation for the company to keep growing upon.

Over the long-term, there will be an increasing shift in how marketers will reach a growing audience using many platforms to view content. Having the ability to reach a specific audience will be key, and companies that can increase a company’s return on investment will be highly rewarded. The Trade Desk is positioned to capitalize on the growing segment, fighting for market share from the competition, leading the revolution in advertising.

The post What Does The Trade Desk Do and Where is it Going? appeared first on The Motley Fool Canada.

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The creator of famous games such as Farmville, Zynga Poker, Mafia Wars, and Café World, Zynga (NASDAQ: ZNGA) has been in the mobile gaming space since 2007. The road leading up to 2019 has been rocky, as Zynga has gone from 298 million users per month in 2012 to 70 million in the second quarter of 2019 — the decline in users has also been reflected in the stock price. Zynga appointed a new CEO in 2017, Frank Gibeau, to streamline the company, driving a strategic mindset. After two years in the captain’s chair and a few acquisitions under his belt, Gibeau may be onto something.

Buy the growth

Zynga has shown an ability to evolve with the market and stay ahead of the competition by reaching additional customers through innovative strategies and games. To accelerate growth, Zynga recently raised $690 million in convertible notes, generating $600 million in cash. In addition, they completed a sale-leaseback of the headquarters building in San Francisco for $580 million. With liquid assets of $1.3 billion, additional acquisitions may be in Gibeau’s sights.

Zynga picked up a top game producer, Gram Games for $250 million in 2018. As the creator of Merge Dragons and many other popular games, the acquisition looks like a win for Zynga. Gibeau stated that the acquisition price was two to three times the revenue that Gram generated. Assuming profit margins are healthy, the breakeven timeframe could be short. To expand even further on an opportunity, Gram Games used the popular game Merge Dragons and spun it into a new game titled Merge Magic, which is expected to drive similar popularity as Merge Dragons, one of the top 50 games in the United States.

The second acquisition Zynga made in 2018 was a $560 million purchase of 80% of Small Giant Games — with an overall plan to own the entire company three years after the date of acquisition. A single game in Small Giant’s portfolio, Empires & Puzzles, brings in annual revenue of $19 million per the Sensor Tower’s estimates. In 2017 Small Giant Games had bookings of $190 million, just behind Zynga’s Words with Friends.

Growth in the mobile segment will come from the process of maximizing the products on hand, in addition to further acquisitions. Gram Games spinning Merge Dragons into Merge Magic was a genius move that opens the door for Zynga to replicate that process with every popular title.

The future is looking bright

Revenue and bookings were up in the second quarter of 2019. Revenue came in at $306 million, up 41% year-over-year, and bookings of $376 million, up 61% year-over-year. In case you are wondering, the difference between bookings and revenue lies in the handling of revenue. Zynga recognizes bookings as deferred revenue plus recognized revenue from purchased virtual items or certain advertising sales. The revenue is recognized across the life of the purchase from the tenure of the average game player. If bookings are rising fast, revenue will follow.

The recently reported operating cash flow of $99 million in the second quarter of 2019 was the best for the company since the fourth quarter of 2011, and that should please investors. Up 140% year-over-year, Zynga can capitalize on future investments, strengthening the possibility of larger acquisitions. Management recently released a revised 2019 full-year guidance up $40 million to total $1.24 billion in revenue, which represents year-over-year growth of 37%. Bookings guidance was raised $50 million to total $1.5 billion for 2019, a 55% increase year-over-year.

It doesn’t take long to see that Zynga is healthy and has repositioned itself into a lean and fast-moving company focused on strategic acquisitions and optimal user engagement. Daily and monthly active users are currently in a holding pattern, however, bookings per user are increasing each quarter.

The game is just getting started

Zynga is a company that will capitalize on the growing mobile game segment. The potential for acquisitions — with $1.3 billion in liquid assets — to drive growth alongside an impressive set of games are good reasons to add Zynga to your portfolio. With positive cash flow, growth in revenue and bookings, and an expanding mobile market, Zynga is positioned for success.

The post This Mobile Gaming Stock is a Sleeping Giant appeared first on The Motley Fool Canada.

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