TUBE

Publicly traded companies mentioned herein: Alphabet Inc (GOOGL), Criteo SA (CRTO), Facebook Inc (FB), Marin Software Inc (MRIN), Rocket Fuel Inc (FUEL), The Rubicon Project Inc (RUBI), TubeMogul Inc (TUBE),

Highlights

The presenter is short shares of TubeMogul (TUBE) at $9 and thinks the stock may decline by 30% - 50% over the next 6 - 12 months. Outside of Criteo, he has visited every advertising tech company in recent months, and in his opinion the business is “not a good one; margins are under pressure and any time your business is at risk of being ‘snuffed out’ by Facebook and/ or Google, it’s a problem”. Roughly 90% of all new digital ad dollars are captured by Google and Facebook, and the remaining 10% is “fought over” by 3,500 companies. With such extreme competition for such a small percentage of the market, margin compression is likely to weigh on the industry. Overall, the risk/ reward is favorable because TUBE is coming off of its first quarterly miss and reduction in guidance (reported on Q2 2016), and he thinks guidance still needs to be cut further when Q3 2016 is reported. The shift to mobile appears to be impacting TubeMogul’s value proposition, as attribution and targeting are more difficult on mobile than on desktop; and, shifting to display is not likely the answer TUBE is hoping for. The presenter likes the timing and entry point ahead of Q3 results (expected to be reported in early November) because any upside risk should be minimal due to a combination of 1) technical selling pressure due to TUBE’s largest shareholder shutting down its fund, and 2) a client base (ad agencies) that is known to be difficult to work with.