Introduction
Kubient (KBNT) is a cloud-based software platform for digital advertising. It is a relatively new company founded in 2017 by Paul Roberts and went public through an IPO in August 2020. The company’s main product is its audience marketplace and its flagship ad-fraud prevention technology KAI. The audience marketplace uses programmatic advertising to allow advertisers and publishers bid in real-time through the cloud. Whereas KAI allows advertisers and publishers to detect ad fraud in real-time prior to bidding to tackle the increasing ad-fraud problem in the digital advertising industry.
Why Kubient?
Unlike other major programmatic advertising companies such as The Trade Desk (TTD), Magnite (MGNI), PubMatic (PUBM), and AcutiyAds (ATY), Kubient focuses more on the ad fraud segment within the industry. Ad fraud is one of the biggest problems in the digital advertising industry and is spreading quickly. According to Kubient’s research, it was estimated that Ad-fraud account for losses between $19 and $42 billion annually, and 20% of advertising budget is wasted because of it. A lot of companies are frustrated as a large portion of their advertising budget went to bots and are not able to reach their desired target audience.
The research also shows that digital advertising executives are seeking more insights for their advertising spend and over 50% of advertising professionals believe the industry has not done enough to stop ad fraud. This is why Kubient decides to solve the problem by building its own Ad-fraud prevention software KAI. KAI is able to identify and block false requests in real-time while the auction is happening automatically with its best in class 5 milliseconds latency. Besides, its AI feature allows it to learn and detect more and more fraud pattern as it goes through more requests over time. As shown in the chart below, KAI offers a much larger coverage and a shorter pre-bid latency compared to other competitors which allows it to catch the fraud in almost real-time.
Set up for growth
Kubient went on a hiring spree lately to expand its management team rapidly. Two note-worthy appointments are Leon Zemel as chief product officer and Kimberly Kahn as VP of people’s operation. Both Leon and Kimberly are former DoubleVerify (DV) employees and veterans with experiences like them being able to come onboard to a young company proves the attractiveness of Kubient’s prospect. Also, the latest hire of Mike Gavigan and Mark St.Armour to the sales team help bring clients such as Lands’ End, Hearst, theSkimm, Enfamil, Leo Burnett, and Domino’s Pizza to Kubient’s portfolio of partners. This is really big because on the last earnings call CEO Paul Roberts stressed that they’re satisfied with their number of publishers right now but they need more advertisers, therefore being able to grow the sales team and bring in blue-chip partners such as Domino’s Pizza is certainly a big step in the right direction.
As a small company with a market cap of around $40 million, Kubient ended the latest quarter with a cash balance of $32.5 million. This allows the management team to pursue M&A activities when there is a suitable target. KAI is a game-changer in the industry if it succeeds as it brings capabilities such as AI pre-bid fraud prevention with minimal latency which no other company is able to do at the moment. The success of KAI will attract companies to switch from its old DSP and SSP company to Kubient which will allow the company to grow exponentially. One of the under-looked growth avenues for Kubient is its DOOH (digital out of home) infrastructure marketplace. Its partnership with Zoox Smart Data allows it to reach unique high-value captive audiences in hospitality and transit locations such as hotels, transit system, and airports. This gives an advantage for Kubient not to only allow advertisers to advertise on phones, computers, and smart tv but also outside at smart connected infrastructure throughout the city.
Kubient also recently partnered with the Verve group to gain access to more DSPs. This partnership now allows Kubient’s publisher in its marketplace to have exposure to more advertisers. In November, the company announced that it has acqui-hired MediaCrossing, a premier digital advertising agency. The acquisition allows Kubient to add 10 experienced employees, and to bring MediaCrossing’s client base to their own Audience Marketplace, giving them access to supply at scale. After this acquisition, the company still has cash left and management said they are still actively seeking more M&A opportunities.
Risk
The risk with Kubient is that their prospect heavily relies on only one product which is KAI. If KAI ends up not performing as impressive as it claims itself to be then investors’ appetite for Kubient will be diminished. Besides, the integration of KAI only began not so long ago therefore it is hard to know the feedback of it from different users. The number of audits and trials being scheduled by prospective customers are currently 14 and it will be important to see how many customers can they convert moving forward. Kubient might also face more competition as other larger advertising companies like DoubleVerify (DV) start to invest more in their own Ad-fraud product offering. It is also worth knowing that this is a really volatile stock given its low float and lack of institutional holdings.
Conclusion
This is a small company but I believe they are poised to be much bigger in the long run. I really like the fact that they are more focused on the Ad-fraud space where there is less competition and KAI is the crown jewel of the company with unmatched capabilities in the ad-fraud space. The CEO is doing a great job growing the management and sales team, and the launch of KAI is starting to pick up some steam and I believe we will see a lot of new customers adopting the KAI software. The company also just got included in the Russell Microcap index which is a validation and I believe a lot more institutions will start to notice this fast-growing gem soon. Although there might be risks and execution problems, overall I think the valuation at the current price is just too low to ignore. I believe an FWD 23 price to sale (P/S) ratio of 7 will be fair which puts the share price at around $8 a share which represents a 300% upside.
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