Applovin, deep value adtech to double again?
Long thesis
A bird’s-eye overview of the adtech ecosystem
Adtech can be an obscure field, due to the wide variety of types of players involved. However, obviously it can be a lucrative field for investing as dominant social media players active in the field such as Google and Facebook are printing cash, while also pure-play strongly positioned players such as The Trade Desk have been excellent performers.
In a nutshell, in adtech advertisers are aiming to reach consumers via digital ads, such as in the Wall Street Journal or on Instagram, and there a variety of ways of linking these two parties. Traditionally, an advertiser would hire an agency which would have deals in place with publishers such as the WSJ to buy advertising space, but with the rise of the internet in the digital world this has mostly moved towards programmatic buying. So when a visitor on the WSJ app starts reading a news story, the WSJ will let potential buyers know that there is an ad space available. Available ad inventory is aggregated on supply side platforms (SSPs), which in turn provide this supply to ad exchanges as available for sale. Advertisers in turn make marketing budgets available on demand side platforms (DSPs) such as The Trade Desk, which place bids for available inventory on exchanges.
DSPs and SSPs can also connect to ad networks to buy and sell ads, the best known networks are Google and Facebook, although they can also operates an ad exchange. Ad networks are more of a vertically integrated solution for the ad supply chain, while ad exchanges purely match supply and demand. Typically large advertisers and publishers go mostly over exchange, whereas smaller players go mostly over the networks due to the more complete and more user friendly offering. The above illustration shows how an advertiser like Coca Cola can have its ad displayed on a digital property over multiple avenues.
For premium subscribers, we’ll dive into Applovin and why the risk-reward is looking attractive here.