If you heard someone mention “Tremor Video,” what would immediately come to mind? Someone filming an earthquake instead of running? A so-bad-it’s-good Kevin Bacon movie? A so-bad-it’s-awful music video (Save yourself the trouble of YouTubing it. I wish I’d never seen it or heard it.) photo attribute IMBD
Let me say up front that we have no axe at all here. In addition to the usual pablum, I swear that Tremor Video (TRMR) isn’t a client, I’ve never spoken with anyone at the company and we own no position in the stock. I just like finding interesting companies and learning more about them.
It turns out that this NYC-based and NYSE-traded company creates software for the video advertising world.
Last month, the company reported a strong quarter and full year 2016:
- Record quarterly revenue, adjusted EBITDA and “Total Spend” (the aggregate advertising spend transacted through Tremor’s software platforms).
- Record full year gross profit.
- Full year Total Spend up 25% over 2015.
- No long term debt outside of deferred rent and taxes, and a capital lease.
So why did the stock take a 14% whack on those numbers? As part of its earnings announcement, Tremor also unconventionally disclosed that Bill Day, CEO since 2008, was resigning immediately (though staying on in a transitional advisory role for another few months). Non-executive Chairman of the Board and media veteran Paul Caine (Bloomberg, WestwoodOne, Time) has stepped in as interim CEO, and Heidrick & Struggles is looking for Day’s permanent successor.
Couple of related observations:
- It seems like the Street, even before Day’s retirement, has been valuing Tremor as if it were an advertising agency, when it’s really a software company. It just feels like this is a story that could be articulated better.
- Right after Election Day, Adobe (ADBE) announced the acquisition of TubeMogul, a competitor of Tremor, for $540 million. Take a look at just a couple of data points from their Q3 2016 financials, the last ones reported before TubeMogul’s deal:
The TubeMogul (TUBE) deal sent shares in Tremor Video (TRMR) catapulting higher in November when the parallel deal was going down (other analysts wrongly contribute the rise in shares to be Election related -when they were not the catalyst) and a quick revisit to the chart above shows the sell off in shares is giving investors an opportunity to own discounted common stock as this sub-sector gets rolled up.
The CEO search is a healthy change at (TRMR), and it was clear to the Board of Directors that this move was needed here and now and Caine did exactly that back in November, which lends itself to the suspicion that a “culture change” was more important than a price decline, and what was needed as things (I’m speculating) had become toxic. There is no other explanation for the move. It is clear to Equities Research that the powers that be (Paul Caine) felt they could operate the company better without Bill Day than with his hand on the rudder. So Caine is now steering the ship.
We would like to learn more about this, but frankly it no longer matters. What we can safely say is that whomever Caine puts in the seat (likely Tremor has an acquirer targeted) will come from or have skill sets related to an upcoming take out. Paul, if you don’t know who these acquisition candidates are, call us we will assist in these introductions.
While we don’t pretend this is a comprehensive financial analysis between apples and apples – and we’re not assuming the company is purchased in Q2 2017 – we think it needs to operate and transition the market awareness to its new multiple. This takes a bit of time and it is required to get a few analysts and Wall Street banks on board – but we believe this is what is in progress by the bold move made by removing Bill Day on Election Day !!
We view the BOD expertise to be an important part of future valuation above its current $100 million floor. Tremor is a software company disguised as an undervalued media company, and software is eating the world – just ask any auto CEO about Uber’s private valuation which is larger than all auto stocks combined. Software is eating the world – and will affect shares in this sub-sector. We know this at Equities.com – every digital media asset wants to add a technology or financial services multiple – to the valuation. Just ask CEO Enzo Villani .
We think, in light of the rather similar numbers above, a valid question to ponder may be – why is Tremor’s market cap only $114 million? A likely take out number could be north of $3.00 per share in 2017, we think in 12 -18 month’s this is a $250m take out by Adobe (ADBE). The trick will be to get an Application Software valuation like TubeMogul, in fact I would bet whoever led the (TUBE) deal has been eyeing Tremor in M&A that is how Wall Street works. We look forward to delving deeper into Tremor Video and talking with Paul Caine . Paul Call me. In fact we will come to see you !!
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