shapecharge
In the summer of 2021, I wondered what was happening to the shares of Viant Technology (NASDAQ:DSP), as shares fell 80% in the time frame of just half a year since its public offering. 2021 was set to show meaningful growth over a pandemic-impacted year, as shares looked very cheap, puzzling cheap, although I had some underlying concerns.
Forwarding two years in time, shares have been cut in half, now trading at $7 and change. This is the case, even as shares have recently doubled as the business has shown some signs of life again, although not enough for me to get too upbeat and get involved.
A Recap
Viant went public in February 2021, being the next automatic/programmatic advertising company to go public. Figuring out the winner in this market is key, as the sector has seen spectacular failures in its space, as well as some undisputed winners, for instance, The Trade Desk (TTD).
Viant provides automatic planning, buying, and measurement of advertising across all channels, through its Adelphic software. New solutions are key, with cookie-based identification, privacy concerns, and tighter regulation making old methods rather ineffective.
Through the platform, marketers can rapidly and easily buy advertisements across all channels and devices, relying on open data instead of cookies. Note that the business is not a transformative play that was founded in recent years, as the business was founded back in 1999, with the real transformation taking place since the 2017 purchase of Adelphic.
Shares went public at $25 per share in February 2021, as shares rose to highs around $65 per share in the days that followed, pushing up operating asset valuations to about $3.5 billion.
The company grew 2019 sales by 52% to $165 million, as an operating loss of $20 million turned into a profit of $13 million. The company was set to post flattish revenues at $165 million in 2020 amidst the pandemic, as a resulting >20 times sales multiple was rather steep, let alone the resulting earnings multiple at those levels.
Little could I have imagined that shares would fall 80% in the first half year as a publicly traded company. The company guided for 2021 sales to be up 19% to $197 million, yet the issue was that the adjusted EBITDA guidance for 2021 (at $23 million) was much lower than a >$31 million EBITDA number posted in 2020. Even as the company had hiked the full-year sales guidance to $207 million, and EBITDA guidance to $30 million, by the second quarter, shares were coming under a lot of pressure.
In fact, at $13, the company commanded a mere $600 million valuation in the summer of 2021, a number which furthermore included a $230 million net cash position. The resulting $370 million operating asset valuation came in at less than 2 times sales and around 12 times EBITDA, looking like a rather modest multiple. Being puzzled by the lower valuation, I failed to have a conviction about the business, and with growth not being strong enough, I failed to pull the trigger.
Caution Saves The Day
Since the summer of 2021, shares of Viant kept falling, hitting lows of $3 and changing by the end of 2022. In fact, shares traded at $4 and changed in recent weeks, before rallying to the $7 mark today.
As it turned out, the company grew 2021 sales to $224.1 million on which an EBITDA number of $37.1 million was reported. This however resulted in a big GAAP loss, as it among others, excluded a stock-based compensation expense of nearly $69 million. The problem is that the lack of operating strength, and competitive solution, caught up with the firm in 2022. Sales fell by more than 12% to $197.2 million, as operating losses rose further to $49 million, as the company posted an adjusted EBITDA loss of $6 million and change.
The company only provided a first quarter guidance for the year 2023, with sales seen at $39-$42 million, with EBITDA losses seen between $2.5 and $4.5 million. Still carrying a $206 million net cash position, this position represents a great portion of the market value of about $434 million at $7 per share. This means that the business has actually traded around the net cash position at $3 and changed for most of the last year.
In May, the company reported a 2% fall in first quarter sales to $41.7 million, with revenues coming in at the higher end of the guidance, as adjusted EBITDA losses of $0.4 million were lower than previously believed.
The company outlined a rather upbeat second quarter guidance, with sales seen between $52 million and $55 million, and adjusted EBITDA seen between $2 million and $3 million. As it turned out in August, the company grew second quarter sales by 12% to $57.2 million but moreover produced a $6.8 million EBITDA number. Note that despite the spectacular improvement, the company still posted a $5.2 billion GAAP operating loss, although net losses were narrowing on the back of interest income received on net cash balances.
The company furthermore believed that good times were set to continue with third quarter sales seen at $56-59 million, and EBITDA seen at $6.5-7.5 million, with the company having a history of guiding a bit light recently.
A Final Word
As revenues are firmly on track to surpass the $200 million mark here and losses rapidly coming down, so are the expectations as this has driven shares higher. With the operating asset valuation even at $7 only surpassing the $200 million mark, operating assets trade at just 1 times sales, but the company is still not yet profitable, as I still have some long-term concerns about the business.
With the business showing some signs of operating performance, which is evident in the share price now as well, I am still very cautious. The signs are encouraging, but I simply feel as if the quality of the business is not good enough to have conviction here, as the company still has some heavy lifting to achieve realistic break-even levels.
