Snapshot

Merchants are increasingly adopting a multitude of software solutions and new digital tools to operate their businesses, manage interactions with customers, and accept payments, all whilst remaining competitive. The complexity of conducting commerce across these software suites has created an enormous challenge for card-accepting merchants.

Shift4 Payments is redefining commerce by simplifying complex payment ecosystems across the world. As a leader in commerce-enabling technology, Shift4 powers billions of transactions annually for over 200k businesses across virtually every industry. It has achieved this leadership position through decades of solving business and operational challenges facing customers’ overall commerce needs.

The company distributes services through a network of software partners and value-added resellers. For software partners, it offers everything from a single integration to an end-to-end payments solution, along with a proprietary gateway and a robust suite of other technology solutions to simplify payment acceptance. While for merchant customers, it provides a seamless, unified consumer experience as an alternative to relying on multiple providers to accept card-based and digital payments.

Shift4’s best-in-class technology provides the backbone payments for many leading brands from Burger King to Elon Musk’s Starlink. With a strong track record of consistent execution and winning new business, coupled with the ongoing growth in digital commerce the company is poised to benefit from huge tailwinds in payment processing needs.

Background

While working as an employee of a payment processing company, the then 16-year-old Jarod Isaacman identified what he saw as inefficiencies in the industry. In response, he launched United Bank Card in his parent’s basement in New Jersey. At the time, it generally took merchants about one month to set up a payment system and merchants had to pay for their credit card readers and sign a lengthy application. As an alternative, Isaacman’s new company cut the set-up time to one day, gave merchants free credit card readers, and only required them to sign a two-page application.

In the preceding years, the company expanded by acquiring multiple payment processing and point-of-sale companies, including payment gateway provider Shift4 Corporation, and in the process, rebranding itself as Shift4 Payments.

Shift4 went public on the NYSE in June 2020, raising $345 million through its IPO, as one of the few companies to go public in the months after the start of the COVID-19 pandemic. Since then the company’s acquisitions have continued with 3dcart, an eCommerce platform, which was subsequently rebranded as Shift4Shop. Followed by VenueNext, a provider of point-of-sale and payment solutions for stadiums, arenas, and other entertainment venues. Along with global payment provider, Finaro, a year later.

Leadership

Still with the company as chief executive officer, Jared Isaacman manages the core divisions of Shift4, as well as the overall operations of the company. He is considered to be one of the industry’s most influential business leaders and has been recognized with several prestigious awards including one of “America’s Best Entrepreneurs” by BusinessWeek Magazine and “30 Entrepreneurs Under 30” by Inc. Magazine.

Taylor Lauber serves as president and chief strategy officer and is responsible for all aspects of growth, including overseeing product development, strategic partnerships, and corporate development/investments. Prior to joining Shift4, Lauber held several senior roles at financial giants Blackstone and Merrill Lynch.

While chief technology officer, Michael Russo, has over 30 years of experience in the hospitality and healthcare technology space, building cutting-edge software products, driving strategic business initiatives, and developing go-to-market strategies.

Customer

At the heart of Shift4’s business is its payments platform. The company’s value proposition is to create a seamless end-to-end payments solution that includes point-of-sale (POS) terminals, payment gateway integration, and processing.

The platform provides omnichannel card acceptance and processing solutions across multiple payment types, including credit, debit, contactless card, EMV, QR Pay, and mobile wallets, as well as alternative payment methods such as Apple Pay, Google Pay, Alipay, and WeChat Pay. It also provides full eCommerce capabilities, including web-store design, hosting, shopping cart management, and fulfillment integrations, along with security and risk management solutions, as well as reporting and analytical tools.

Shift4’s comprehensive suite of technology solutions which is designed to streamline customers’ business operations includes:
• VenueNext – provides stadium and entertainment venues with a frictionless commerce experience that includes mobile ordering, countertop point-of-sale, self-service kiosks, and digital wallets to facilitate food and beverage, merchandise, and loyalty functions all within a white-labeled technology application that is fully integrated with its secure end-to-end payment processing platform.
• Shift4Shop – a turnkey eCommerce platform for merchants to build their business online. Merchants can create a webstore in minutes, manage their product catalog, order fulfillment and inventory management, search engine optimization, and secure hosting.
• Lighthouse – a cloud-based suite of business intelligence tools that includes customer engagement, social media management, online reputation management, scheduling, and product pricing, as well as extensive reporting and analytics.
• SkyTab hybrid-cloud-based Integrated Point-of-Sale – purpose-built POS workstations pre-loaded with powerful software suites and integrated payment functionality for restaurant and stadium clients.
• SkyTab Mobile POS – provides pay-at-the-table, order-at-the-table, delivery, customer feedback, and email marketing functionality.
• Marketplace – enables seamless integrations into complementary third-party applications such as inventory, loyalty, payroll, timekeeping, and other human resource services, reducing the number of vendors on which merchants rely.

The majority of Shift4’s revenue is derived from fees paid by merchants, which principally include a processing fee that is charged as a percentage of end-to-end payment volume. In cases where merchants subscribe only to the gateway, Shift4 generates revenue from transaction fees charged in the form of a monthly and fixed fee per transaction. It also generates subscription revenue from licensing its POS software, business intelligence tools, payment device management, and other technology solutions.

Shift4 markets and sells its solutions through a diversified network of over 7,000 software partners, which consists of technology providers that develop commerce-enabling software suites with which they can bundle the payments platform, along with other organizations that provide distribution support.

The company has over 200k customers which mainly consist of brick-and-mortar restaurants, hotels, casinos, sports arenas, gyms, etc. The vast majority of its merchants include highly-scalable small to medium size businesses across numerous verticals including food and beverage, hospitality, stadiums and arenas, gaming, specialty retail, non-profits, and eCommerce. Yet its most well-known customers include Hilton, Caesers, DoubleTree, Burger King, Applebees, Popeyes, Dennys, TGI Fridays, the LA Galaxy Arena, and many more. While most recently, the company saw contract wins with Wisconsin and Alabama Universities, as well as taking on the payments for the Starlink satellite internet service.

Thematic

Starting its life as a payment gateway which it still provides today, Shift4’s differentiation lies in its expansion into a complete end-to-end platform. This expanded suite of services offers many functional advantages and with over 400 software integrations, enables it to deal with the most complex payment requirements. Furthermore, as users migrate from a payment gateway to a wider usage of services, the company benefits from improvements in its overall gross margins and ultimate profitability.

Acquisitions in recent years have helped Shift4 take advantage of expanded verticals including sports and entertainment venues, gaming, and eCommerce, adding to its market-leading position in the restaurant and hospitality space and extending its total addressable market to more than $3.5 trillion. The purchase of VenueNext has driven substantial new customer acquisitions as individual stadiums and arenas are far larger than restaurants or even most hotels in terms of their contribution to payment volume.

These revenues from stadiums can also benefit from tickets to events and other merchandise, usually sold in conjunction with a Shift4Shop integration, born out of the 3dcart acquisition. Despite the availability of a substantial number of eCommerce platforms, including the ubiquitous Shopify, Shift4Shop has gained significant traction expanding its user base to tens of thousands of online stores, as merchants appreciate the in-built functionality of payment processing within the store management toolset.

Whilst most recently, the company’s purchase of global cross-border payment provider and fully licensed bank, Finaro, underscored its aggressive efforts to deliver a unified commerce experience across the world. By integrating Finaro’s capabilities, Shift4 expects to further expand its current services including SkyTab POS, Shift4Shop, and VenueNext stadium offerings globally.

The rollout of the latest version of Shift4’s SkyTab POS solution has also been of particular focus as restaurants remain by far, the largest single vertical of the company covering over 125k locations. It is anticipated the overall product refresh will continue to help solidify new wins and the conversions of gateway customers to the end-to-end platform, as the company looks to de-emphasize gateway-only connections to remove unnecessary operational parts, whilst also improving revenue and margins in its high-growth core business.

Financials

Shift4’s rapid expansion in recent years has flowed through to strong growth in end-to-end volumes, revenue, gross profit, and net income. This trend continued in its latest quarter with record results across the key metrics. Gross revenue was $547.3 million for the September 2022 period, compared to $377.8 million 2021, representing an impressive increase of 44.9% year-on-year. The increase was largely driven by end-to-end payment volume of $7.1 billion which was up by more than 52%, while subscriptions and other revenues were also up a healthy 24%. The strong result sent revenues for the year to date to an all-time high of $1.46 billion, surging over 50% on the same nine months in 2021.

Record levels were also reached for adjusted EBITDA and net income which came in at $85.4 million and $46.4 million respectively, as more and more enterprise gateway customers were re-signed under more favorable economic terms consistent with the company’s ‘gateway sunset strategy’ that is focused on ‘sunsetting’ legacy contracts.

Looking ahead, Shift4 is forecasting another robust quarter with revenue expected to close out 2022 between $1.95 and $2.04 billion, aligning with consensus estimates and representing year-over-year growth of 44%. While full-year earnings per share estimates for 2022 are also forecasted to improve by an enormous 95% to $1.38 per share, up from $0.71 in 2021.

Risks/Competition

Shift4 competes with a range of providers, many delivering particular components of Shift4’s offering, but do not provide an integrated end-to-end solution capable of addressing complex business challenges for software partners and merchants. Major competitors include third-party payment processors such as Chase Paymentech, Elavon, FIS, Fiserv, and Global Payments, along with integrated payment providers such as Adyen, Lightspeed POS, Shopify, Square, and Toast. For its hospitality gateway offering, the company competes primarily with Fusebox (a division of Elavon) and FreedomPay.

Despite the extensive list of well-established competitors, Shift4 believes its reputation, domain expertise, scale of distribution channels, and breadth of offerings and innovation, among other things, have been key to its rapid expansion.

On the economic front, high inflation and a rising interest rate environment have caused many analysts to forecast a recession. Consequently, fintech company share prices have come under pressure as it is assumed consumers will likely make fewer transactions resulting in lower payment volumes for companies like Shift4. Fortunately, any such reduction is likely cyclical.

Conclusion

Thanks to a concerted foray into additional verticals, international expansion, and the launching of new and enhanced products, Shift4 has demonstrated its ability to execute much-needed growth initiatives in the face of a potentially deteriorating economy. With a large base of existing customers and significant contract wins keeping the company delivering record results, it appears to be effectively combating any slowdown in consumer spending.

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Snapshot

Today’s most exciting technologies such as 5G, artificial intelligence, augmented reality, and autonomous vehicles among many others, are only enabled by the cutting-edge efforts of the most advanced organizations on the planet. ON Semiconductor Corporation (onsemi) is one of these companies bringing the most sophisticated and complex ideas in technology to reality, creating products and solutions that are driving disruptive innovations to help build a better future.

With a focus on automotive and industrial end-markets, onsemi is accelerating change in megatrends such as vehicle electrification and safety, sustainable energy grids, industrial automation, 5G, and cloud infrastructure. The company offers a highly differentiated and innovative product portfolio, delivering intelligent power and sensing technologies that solve some of the world’s most complex challenges and lead the way to creating a safer, cleaner, and smarter planet.

onsemi’s intelligent power technologies enable the electrification of the automotive industry that allows for lighter and longer-range electric vehicles, empowers efficient fast-charging systems, and propels sustainable energy for the highest efficiency solar strings, industrial power, and storage systems.

While its intelligent sensing technologies support the next generation of smarter factories and buildings and enhance the automotive mobility experience with imaging and depth sensing that make advanced vehicle safety and automated driving systems possible.

onsemi continues to deliver record revenue levels stemming from continued growth in its focus markets of automotive and industrial applications. Furthermore, as the company takes a proactive approach to making structural changes to strengthen the business, it continues to secure contracts where semiconductor content growth is accelerating. Particularly in industries such as vehicle electrification, energy infrastructure, advanced safety, and factory automation.

Background

Originally formed as a spinoff of Motorola’s Semiconductor Components Group, onsemi was founded in 1999. Motorola had been a pioneer in transistors, especially for commercial applications. It also pioneered the automotive electronics industry, from the first mobile radios in police cars in the 1940s to automotive electric controls and semiconductors in the 1970s.

Over the last two decades, the company has grown its footprint with an extensive list of acquisitions including semiconductor competitors, specialist hardware producers covering imaging, radar, power, and other micro-devices, as well as design, manufacturing, and fabrication facilities.

Along with Motorola, the acquisition of Fairchild Semiconductor in 2016 provided a foundation for the modern-day onsemi. Thanks to pioneering technology stemming from the early use of silicon and planar processes that produced the first commercially viable integrated circuits in the 1960s, Fairchild became the foundation for many of the innovations we see today.

Leadership

Hassane El-Khoury has been the president and chief executive officer of onsemi since December 2020. El-Khoury is a seasoned professional with over twenty years of experience in the technology sector. His career has fostered a deep understanding of customer and design requirements in the automotive and industrial markets, as well as a systems-level understanding to form integrated customer solutions and business strategies. He has held several leadership roles throughout his career, most recently as president and CEO for Cypress Semiconductor, where he was the architect of its acquisition by Infineon Technologies AG in early 2020 for €9.0 billion.

El-Khoury has noted that onsemi is embarking on a transformational journey to revolutionize the semiconductor industry with a focus on driving intelligent power and sensing solutions to create a more sustainable ecosystem for future generations. Under his guidance, the company is looking to build a strong culture of innovators and forward, out-of-the-box thinkers interested in pushing the boundaries of expectation.

Customer

onsemi serves a broad base of end-user markets, including automotive, industrial, communications, computing, and consumer customers, among many others. Operating through three segments – Power Solutions, Advanced Solutions, and Intelligent Sensing segments, the company provides its intelligent products worldwide.

onsemi’s power solutions allow customers to achieve lower weights and reduce system costs through an unwavering focus on efficiency. It offers a wide range of semiconductor products that perform multiple application functions, including power switching and conversion, signal conditioning, circuit protection, signal amplification, and voltage regulation functions. The company also designs and develops application-specific standard products and circuits, radio frequency, and integrated power solutions, as well as provides foundry and design services for government customers. In addition, it develops image sensors, signal processors, and photon detectors, as well as actuator drivers for autofocus and image stabilization for a broad base of end-users in various end markets.

Coupled with its sensing integration, onsemi says its power solutions achieve higher efficiencies compared to competitors through lower temperature operation and reducing cooling requirements, all whilst saving costs and minimizing weight, and delivering the required power for a given battery capacity. The advanced proprietary features in smaller packages that deliver optimal results support a diverse range of use cases, and in particular, are enabling the next generation of automotive safety and autonomous driving.

While in the industrial space, onsemi is helping Original Equipment Manufacturers (OEMs) develop innovative products to navigate the ongoing transformation across energy infrastructure, factory automation, and power conversion.

Products are sold through distributors and direct to customers for ultimate use in a variety of products and markets. In general, onsemi maintains long-term relationships with key strategic end customers, which generally include minimum purchase commitments. Sales to distributors who resell to mid-sized and smaller OEMs and other companies accounted for approximately two-thirds of the company’s revenue in 2021. While sales to direct customers include manufacturers who provide contract services for OEMs, along with large multinationals and selected regional OEMs.

Thematic

onsemi’s complementary focus on both power and sensing technologies is aligned with fast-growing secular megatrends in multiple end markets. Opportunities in automation and electrification across a wide range of industries should provide meaningful addressable market growth in years to come. The company currently has a key emphasis on gross margin and operating margin expansion, while at the same time achieving revenue growth in its end markets of automotive and industrial infrastructure, coupled with profitable growth opportunities in other end markets.

Additionally, it continues to rationalize its product portfolio by moving away from non-differentiated products, which have had historically lower gross margins. As a result, onsemi’s product development efforts are being directed towards building solutions in areas that appeal to customers in focused market segments and across multiple high-growth applications, including:
• Powering the electrification of the automotive industry with technologies that allow for lighter and longer-range electric vehicles and enable efficient fast-charging systems;
• Propelling the sustainable energy evolution with the highest efficiency solar strings, industrial power, and storage systems;
• Enhancing the automotive mobility experience with imaging and depth sensing technologies that make advanced vehicle safety and automated driving systems possible; and
• Enabling automation and data exchange with intelligent sensing technologies for smarter factories and buildings.

The volatility in global energy markets is driving an accelerated transition to alternative energy. And with a broad portfolio of Silicon Carbide (SiC) and silicon power modules, onsemi has emerged as a leader in this market. The top 10 solar inverter providers in the world collectively have a market share of 80%, and onsemi has now signed long-term agreements with eight of them. Traction for the company’s SiC solutions is complemented by continued growth in the silicon power business and as a result, it expects to see strong long-term growth in its alternative energy business. A key differentiating advantage for onsemi is its ability to offer silicon and silicon carbide solutions across a wide range of power and voltage requirements.

In 2022, the company has also targeted the streamlining of operations by undertaking several initiatives to achieve efficiencies including the divestment of manufacturing facilities, two office buildings, and the sale of its corporate headquarters facilities in Arizona. A transition to a lighter internal fabrication model aims to help financial performance to be less volatile and not as heavily influenced by internal manufacturing volumes. It also approved an exit plan to wind down its Wi-Fi solutions division within the Advanced Solutions Group segment, which will further enable investments to be directed to areas of strategic focus.

Financials

In its latest release, onsemi closed its sixth consecutive quarter of record financial results stemming from continued growth in automotive and industrial applications. Revenue of $2.19 billion beat analysts’ estimates and represented an increase of 26% year-over-year, with the auto segment up 51% and the industrial segment up 28%. While a softening in nonstrategic end markets of consumer and computing saw both declining mid-single digits sequentially.

Over the last 18 months, the company has taken a concerted approach to improve the predictability and reduce the volatility of the business, with the rationalization of the product portfolio exiting $277 million of business to eliminate exposure to products at dilutive gross margins. At the end of the third quarter, a record non-GAAP operating margin of 35.4% had increased by approximately 1,100 basis points year-over-year. As a result, gross profit increased $337.5 million, or approximately 47%, to a record $1.06 billion, up from $720.8 million in 2021.

While operating expenses did not change materially, the company declared a goodwill and intangible asset impairment of $271.8 million, which ultimately brought net income down to $311.9 for the quarter.

Looking ahead, onsemi is forecasting another robust quarter with revenue expected between $2.01-2.14 billion, aligning with consensus estimates that have the company closing out the full year with a record $8.31 billion in revenue, representing year-over-year growth of 23%. While full-year earnings per share estimates for 2022 are also forecasted to improve by almost 79% to $5.27 per share, up from $2.95 in 2021.

Risks/Competition

onsemi faces significant competition from major international semiconductor companies including Sony, Samsung, Broadcom, Infineon Technologies, Wolfspeed, STMicroelectronics, Texas Instruments, and Toshiba Corporation, along with smaller companies focused on specific market niches.

However, its competitive strengths include core competencies in leading-edge fabrication technologies and micro packaging expertise, coupled with the breadth of its product line and IP portfolio, where the company believes it maintains significant performance advantages over the competition.

Conclusion

While stocks in the semiconductor industry have experienced some weakness attributed to lower PC and smartphone demand, neither of these markets are of concern for onsemi. It remains attractively leveraged to growth not only in the auto sector due to EVs and automation, but also increased electrification across a range of end-markets, and as a result continues to post impressive results, delivering record numbers, and beating analysts’ expectations.

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The world of online media has become a tricky place for businesses to navigate as websites built on streams of advertising and content are impacted by the proliferation of misinformation in everything from pandemics to politics to social issues. Sites that want to increase traffic and engagement also want to ensure their brands are protected by not being associated with controversial or inappropriate content.

DoubleVerify is a leading software platform for digital media measurement and analytics. Through its software platform and the metrics it provides, it helps preserve the fair value exchange between buyers and sellers of digital media. The company not only helps businesses have more control over their brands by providing more visibility and analytics, it also allows companies to maximize the value they can obtain from their advertising budgets.

Having pioneered digital ad verification over a decade ago, DoubleVerify now authenticates media quality and performance for the world’s largest brands, platforms, and publishers.

By providing tools to advertisers, brands, marketplaces, and publishers, the company’s industry-leading technology can provide key insights to detect fraud, “viewability”, and brand safety. These metrics give businesses peace of mind that the valuable advertising dollars they are paying for, are providing engagement with real people and not automated bots. In addition, the platform ensures ads are in formats that can operate correctly on a range of devices and are not running alongside inappropriate content.

Ultimately, DoubleVerify’s technology provides unbiased data analytics that enables advertisers to increase the effectiveness, quality, and return on their digital advertising investments.

With a software solution that is supported by many of the world’s largest and most well-known advertisers, including FaceBook, Ford, and Pfizer, DoubleVerify continues to capture share in a very large and growing total addressable market, supported by several tailwinds.

Background

Founded in 2008, DoubleVerify introduced its first brand safety and suitability solution in 2010. And as the global digital advertising market has evolved, the company has continued to expand its capabilities through new product innovation and partnerships across emerging programmatic media buying platforms and digital media channels, including social and connected TV (CTV).

New solutions have included pre-bid targeting, fraud, and brand suitability tools, as well as predictive and contextual technology to boost engagement. While key integrations with programmatic partners have seen the company join forces with The Trade Desk and Google. Several social platform partnerships have also been announced over the years including Facebook, Snap, and YouTube, along with Twitter, Pinterest, and TikTok subsequently added.

Acquisitions including Leiki Oy, Zentrick, Ad-Juster Inc, Outrigger Media Inc, and Meetrics have also helped to build the company’s presence across the globe.

In April 2021, DoubleVerify was listed on the NYSE after raising close to $360 million.

Leadership

Mark Zagorski currently heads up DoubleVerify as chief executive officer, responsible for oversight of global company operations, expansion into new markets, and strategic product innovation. Joining the company in 2020, Zagorski brings over two decades of digital marketing and advertising technology leadership to the role, including expertise in connected TV, data analytics, and digital advertising optimization. Prior to DoubleVerify, he served as the CEO of NYSE-listed Telaria, where he was instrumental in establishing the business as the leading video and CTV monetization platform for premium video publishers. In addition, he spearheaded the company’s successful merger with the Nasdaq-listed Rubicon Project, resulting in the industry’s largest independent sell-side advertising platform. He was also the CEO of eXelate, where he led the sale of the company to Nielsen and subsequently assumed the role of executive vice president, launching the Nielsen Marketing Cloud.

Joining Zagorski as chief product officer is Jack Smith, who is responsible for DoubleVerify’s product suite, building and delivering solutions that help advertisers and agencies optimize media investments, manage brand equity risk and increase campaign and creative performance. Smith previously served as global CPO at Group M, where he developed products and platforms that helped teams invest over $80 billion in media spending. With over 25 years of experience in executive strategy, product and technology, he also co-founded the machine learning company Solariat, which was acquired by Genesys, and holds seven patents in AI and machine learning for signal detection in natural language and the prediction of consumer media consumption.

Customer

DoubleVerify’s software platform is integrated across the entire digital advertising ecosystem, including programmatic platforms, social media channels, and digital publishers. It delivers unique data analytics to provide detailed insights into customers’ media performance on both direct and programmatic media buying platforms and across all key digital media channels, formats, and devices.

The technology enables programmatic media traders to evaluate hundreds of billions of transactions daily, ensuring that a digital ad meets the advertiser-defined quality criteria before it is purchased. It also analyses billions of transactions daily to measure whether ads are delivered in a fraud-free, brand-suitable environment and are fully viewable in the intended geography. Customers then leverage these analytics to improve the efficiency of their digital advertising investments by avoiding wasted media spending on blocked or fraudulent ads; optimizing their media strategies in real time by verifying their highest-performing ads and content.

The company’s suite of products includes:
• DV Authentic Ad – a definitive metric of digital media quality, which evaluates the existence of fraud, brand safety, suitability, viewability, and geography for each digital ad.
• DV Authentic Attention – a predictive measure of digital ad performance, by leveraging the data that is aggregated to deliver DV Authentic Ad.
• Custom Contextual – used to enhance programmatic advertising solutions. Advertisers match their ads to relevant content to maximize user engagement and drive optimal campaign performance.
• Supply-Side Solutions – software and data analytics to publishers and other supply-side customers to enable them to maximize revenue from their digital advertising inventory.

The ecosystem allows DoubleVerify to develop a significant data asset that accumulates over time, which can also be leveraged to launch new solutions that address the evolving needs of advertisers.

DoubleVerify generates revenue from its advertising customers based on the volume of media transactions that the software platform measures. This enables the company to grow as customers increase their digital ad spend and as it integrates into new channels and platforms.

DoubleVerify’s blue-chip customer base includes many of the largest global brands throughout over 20 countries including the United States, the United Kingdom, Israel, Singapore, Australia, Brazil, France, Germany, and Japan. It currently serves over 1,000 customers that are diversified across many major industry verticals, including consumer goods, financial services, telecommunications, technology, automotive, and healthcare.

Thematic

DoubleVerify is a leader in a large, fast-growing, and under-penetrated market with significant tailwinds. There is strong global demand across the advertising ecosystem for independent third-party measurement and authentication of digital ads. Advertisers, programmatic platforms, social media channels, and digital publishers are placing increased emphasis on the quality and effectiveness of digital ad spending across all channels, formats, and devices.

With a best-in-class platform, DoubleVerify’s technology stack enables it to develop proprietary advertising performance metrics on each digital ad transaction. This precision sets the company apart from competitors and allows it to provide the most robust data analytics in the industry.

In addition, thanks to its broad ecosystem coverage DoubleVerify provide comprehensive performance metrics across all key digital channels and deliver them through the major platforms that provide direct, programmatic, and social advertising, including Google, Facebook, TikTok, Amazon, and The Trade Desk. And as CTV continues to become an increasingly prominent advertising channel, the company has secured agreements with multiple leading platforms, including Amazon and Roku, creating the broadest integration and partnership coverage across the industry.

As the platform allows DoubleVerify to provide large-scale data analytics to customers around the world seamlessly and cost-effectively, the company can scale its solutions efficiently and with limited incremental costs for new customers and additional solutions. While the consistent nature of revenue, significant operating leverage, and low capital intensity only add to the attractiveness of the business’s operating model.

DoubleVerify estimate that the total addressable market for its core solutions is expected to grow to approximately $20 billion by 2025 with less than 50% penetration. Furthermore, due to its current market leadership, it is well-positioned to generate significant growth across this large, underserved market. It is expected that growth will be primarily driven by the fastest-growing segments of digital ad spend, which are currently among the least penetrated solutions, including mobile in-app, programmatic, social, and CTV.

Consequently, DoubleVerify intends to continue focusing on key growth levers including increasing existing customer spending on digital advertising with the introduction of new solutions. It will also target new advertisers, programmatic platform, and digital publisher customers who have not yet adopted digital ad measurement and analytics solutions. Whilst growing its presence in international markets, and extending its capabilities to cover new and growing digital channels and devices. In addition, DoubleVerify maintains an active pipeline of potential merger and acquisition targets to bolster its current solutions suite and complement organic growth initiatives.

Financials

DoubleVerify has maintained an impressive record of growth and profitability in recent years. That trend continued in 2022 after it delivered an outstanding second quarter and surpassed expectations fueled by record Activation revenue and continued momentum on Social and CTV platforms. Total revenue for the period hit $109.8 million, representing an increase of 43% on the prior comparative, while Activation revenue increased by 60% to reach $60.5 million for the quarter.

This revenue outperformance translated into stronger-than-expected adjusted EBITDA margins, which also benefited from the faster integration of recent acquisitions and a concerted effort to ensure that operating expense growth was commensurate with expected revenue growth. As a result, adjusted EBITDA increased by 60% to $34.0 million, while net income ultimately came in at $10.3 million.

Looking ahead, management raised its midpoint full-year revenue guidance to reflect 35% growth year-over-year, bringing 2022 revenue expectations to between $448 million and $450 million, directly in line with consensus estimates. While full-year earnings per share estimates for 2022 are also forecasted to improve by almost 43% to $0.54 per share, up from $0.38 in 2021.

Risks/Competition

DoubleVerify’s primary competition is other digital ad measurement providers, including Moat and Grapeshot, which are part of the Oracle Data Cloud, and Integral Ad Science. Several companies provide point solutions that address individual aspects of digital ad measurement, such as HUMAN and Zefr, or geographically focused companies. While some of DoubleVerify’s ad platform partners also offer their own measurement solutions solely for ads placed through their ad-buying tools.

However, with major competitive factors in the market including providing a unified and consistent Media Rating Council-accredited measurement, accurate and reliable data insights, and the ability to support large, global customers with complex integrations, DoubleVerify believes it competes favorably and offers a considerable value proposition to customers.

Conclusion

Thanks to strong industry tailwinds and its leading position bolstered by a network effect that continues to strengthen, DoubleVerify looks well-placed to take advantage of several growth levers at its disposal. And with several markets that are underserved, the company’s robust top-line performance to date appears to show no signs of stopping.

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MercadoLibre has emerged as an e-commerce titan, essentially Latin America’s answer to Alibaba, and valued at over $40 billion as consumers across the region have turned to online shopping. The company whose name translates to “free market”, hosts the largest online commerce and payments ecosystem in the region. It enables e-commerce, digital, and mobile payments for its customers through a suite of technology solutions across the complete value chain of commerce.

The platform and related services provide users with tools that address the distinctive cultural and geographic challenges of operating in Latin America, a region with a population of over 650 million people and one of the fastest-growing internet penetration rates in the world.

Beyond its core MarketPlace platform for users to sell products, MercadoLibre offers a payment platform for online sales, advertising, tools for retailers to easily build their own e-commerce platforms, credit scoring, as well as a logistics business facilitating fast and seamless shipments across the different geographies.

The company is currently present in 18 countries including Argentina, Brazil, and Mexico, among others. Boasting almost 140 million users and based on unique visitors and page views, MercadoLibre is the market leader in each of the major countries in which it operates.

Yet Latin America is still in the early stages of the digital transformation of retail. As a result, the company continues to focus on growing its enormous footprint by further enhancing the platform’s ecosystem to better serve individuals, brands, retailers, and other businesses that want to buy or sell goods and services online.

Background

MercadoLibre was founded in Argentina back in 1999, as an online consumer-to-consumer marketplace for pre-owned goods. While pursuing his MBA at Stanford, founder Marcos Galperin was inspired by the success of eBay in the U.S. and wanted to replicate the business model in Latin America. An original team worked in a small garage and launch the bidding-based site after just a couple of months.

The company experienced steep growth during its first years despite the catastrophic effect of the dot-com bubble burst on the technology industry, and by September 2001, eBay had purchased a 19.5% stake in the company.

Beyond the core markets of Brazil, Mexico, and Argentina, operations in Costa Rica, Panama, and the Dominican Republic were up and running by 2006. A year later, MercadoLibre became the first Latin American technology company to be listed on the NASDAQ.

Acquisitions soon included competitor DeRemate’s operations, along with Classified Media Group, which established the e-commerce portals tucarro.com and tuinmueble.com. Also added, were Portal Inmobiliario, a Chilean classified ad website, as well as Metroscúbicos.com, the portal of Mexico-based real estate company Grupo Expansión.

Today, MercadoLibre is the leading e-commerce and fintech platform in Latin America. Now with more than 11,000 employees, explosive growth in 2020 saw it become the biggest company in the region.

Leadership

Founder Marcos Galperin has been the chairman, chief executive officer, and president of MercadoLibre since 1999, shaping and leading the company on its impressive journey from a garage to a continental juggernaut. Prior to MercadoLibre, Galperin’s career began in financial services with time in the fixed income department of J.P. Morgan Securities and at YPF S.A., an integrated oil company, where he managed YPF’s currency and oil derivatives program.

He is joined by long-serving chief operating officer and executive vice president, Daniel Rabinovich, who has been instrumental in the company’s product development as the company’s previous chief technology officer.

While Osvaldo Gimenez who has been the president of the company’s fintech business since 2020 is helping guide MercadoLibre through its next phase of growth with its foray into user-centric apps that have significantly challenged incumbent banks.

Customer

Over the years, MercadoLibre has expanded into several different solutions, following a mission to democratize commerce and advance financial inclusion. Its marketplace continues to be the core of the company providing a fully-automated, topically-arranged, and user-friendly online trading service, yet has evolved to include reviews, payments processing, financing, and shipping and fulfillment solutions. It offers buyers a deep assortment of items that are often more expensive or otherwise hard to find through traditional offline sellers. It has also shifted from bids of pre-owned goods to larger professional sellers offering new items, with fast shipping and free returns. New products now represent about 98% of the platform’s total listings.

Faced with a ubiquitous problem of disintermediation, where both sellers and buyers would seek to find creative ways to bypass the platform’s commissions and connect outside the site, the company largely addressed the issue by integrating their own payment processing and shipping service in the buyer’s journey.

The Mercado Envios service is a shipping solution for marketplace users providing economies of scale through integration with local carriers and state-of-the-art warehousing services underlying it, that drive down shipping costs and eliminate friction for buyers and sellers. Along with various shipping fulfillment options, MercadoLibre’s network of drop-off points provides sellers with an easier way to deliver their products.

While a comprehensive range of point of sale, merchant services, digital wallets, and prepaid card solutions allow merchants and individuals to do everything from process physical and digital payments, QR and P2P payments, pay utility bills, cell phone top-ups, and transportation tickets. Mercado Pago was initially designed to facilitate transactions on MercadoLibre’s Marketplaces by providing a mechanism that allowed users to send and receive payments easily, quickly, and securely. Now, it is a full ecosystem of financial technology solutions that enables any MercadoLibre registered user to send and receive digital payments and to pay for purchases made on any of MercadoLibre’s marketplaces.

Complementing with broader financial services, Mercado Fondo provides an asset-management feature that enables users to reap the benefits of investing in low-risk assets, while the Mercado Credito service gives users access to financing using MercadoLibre information about users for credit scoring purposes.

Thematic

Beyond facilitating marketplace transactions, over the years MercadoLibre has expanded its array of services to third parties outside the core marketplace. It began first by satisfying the growing demand for online-based payment solutions by providing merchants the necessary digital payment infrastructure for e-commerce to flourish in Latin America, having observed that individuals and micro, small and medium-sized enterprises were being underserved or overlooked by incumbent payment providers and financial institutions in the region, and that a very large number of retail transactions were still being settled in cash.

Consequently, the company has aggressively deepened its fintech offerings by growing online-to-offline products and services that aim to draw potential customers from online channels to make purchases in physical stores. Despite this, the impact of the COVID-19 pandemic had a positive effect on the majority of online payment flows which benefited from the same tailwinds as its e-commerce business and more than offset the negative impact of the pandemic on its offline payment solutions, which suffered as a result of the lockdowns.

MercadoLibre’s main focus is to serve people in Latin America by enabling wider access to e-commerce services, thus contributing to the development of a large and growing digital economy in a region. As it strives to make inefficient markets more efficient through technology, its strategy is focused on expanding into additional transactional service offerings, continuing to improve the shopping experience for its users, and increasing the monetization of transactions. New offerings include growing off-platform in both digital and offline transactions, providing additional product categories in the core marketplace, further building its presence in vehicle, real estate and services classifieds, and delivering enterprise software solutions to online commerce business users.

Furthermore, the company believes there is considerable opportunity to take advantage of synergies that exist among its services. By leveraging its various businesses across Envios, Pago, and Marketplace, coupled with its Puntos loyalty program, it expects to promote greater cross-usage, thereby creating a fully integrated ecosystem of e-commerce offerings.

Financials

The second quarter of 2022 marked another period of records for MercadoLibre, with both revenues and EBIT among the KPIs that hit historical marks. Net revenues reached almost $2.6 billion, growing 53% year on year. Total Commerce revenues reached $1.4 billion, growing 23% due to the expansion of total gross merchandise volume along with the acceleration of growth in commerce revenues in Mexico. The company’s Fintech revenues also surpassed the billion-dollar mark for the first time ever and grew 113% year-over-year, as over 38 million unique active users maintained traction in all geographies, and as new features continue to be added.

Gross profit margins improved for the second consecutive quarter, reaching 49.4%, compared to 44.3% last year. Consistent results in the top-line generated scale for MercadoLibre’s cost base and diluting costs for shipping operations, payment processing fees, first-party product costs, customer service operations, and fraud prevention investments.

Operating expenses represented 39.8% of revenues in the quarter, up from 34.5% last year, but improved sequentially from 41.5%, as the company delivered efficiencies in marketing and sales expenses, extracting a higher return on investment for every dollar spent. The efforts delivered a net income of $123 million, up 4.0% from last year.

Looking ahead, consensus estimates appear confident MercadoLibre’s strong performance will continue in the near future as total sales for 2022 are expected to exceed $10 billion, representing almost 50% growth year-on-year. While earnings per share estimates for 2022 are forecasted to reach $7.90 per share, up an enormous 373% from $1.67 in 2021.

MercadoLibre’s management team has not provided specific forecasts, however, its strategy for expansions and improvements across the ecosystem is expected to help support the company’s continued strong growth.

Risks/Competition

As MercadoLibre continues to consolidate as the leading e-commerce and fintech platform in Latin America, it is also under constant threat from some of the biggest players in the industry. With a similar business model, Amazon is already competing with MercadoLibre in Mexico and Brazil. However, the company’s experience navigating the complexities of business and especially logistics in Latin America has helped it remain competitive.

Traditional banks are also fierce competitors to Mercado Pago. After losing their first-mover advantage, many of the biggest banks in the region have launched user-centric apps in an attempt to catch up by leveraging their many years of experience in the industry and their vast number of clients.

Conclusion

Surging from Amazon-like origins, the MercadoLibre marketplace has expanded to become a complete digital ecosystem for millions across Latin America. The rapid adoption of the company’s payment solutions beyond its marketplace continues to push sales to new records. With new products and services and room to achieve huge synergies across the business driving future growth, there appears to be little stopping this massive success story.

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