Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet: Kase Learning Short Selling Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Sahm Adrangi of Kerrisdale Capital who presented about ad fraud and talked about Quinstreet (QNST) which he published a short report on last month.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet (QNST)

- Recently gave a presentation on being short St. Joe (JOE) and short QuinStreet (presentation here), the latter of which plays into the theme of ad fraud

- Ad fraud is basically when online ad impressions or clicks are artificially higher due to bots, not actual users viewing the material.  Pay-per-click ads see 'fake' clicks and then there's sites with tons of fake traffic that are just full of ads to inflate the numbers.  Ad stuffing is when a video has other videos behind the main video someone is watching, giving impressions to something that's not actually being viewed

- Ad fraud is so prevalent and the intermediaries are beneficiaries of it (ad agencies etc), making them slow to adopt preventive measures.  The ultimate loser is the buyer of the ad but it's difficult to detect who is viewing your ad (human vs bot)

-  Technology is rapidly evolving and the bad actors are using more sophisticated measures to generate more fraud

- QuinStreet: if you look at investor presentations or management comments, it's hard to discern where exactly the revenue is coming from (lead generation, or ad-matching placements, etc).   Another report by a separate firm attacked Criteo late last year for suspect traffic as well.

- Walked through examples where some of Quinstreet's sites were receiving traffic from other sites that isn't what it seems: a car insurance site was receiving a lot of traffic, but not from people looking for quotes on car insurance, but rather people earning 'swag bucks' for filling out online surveys and things like that.  Thus car insurers buying ads / paying for leads, weren't really getting what they thought they were (the video below walks through the whole scenario as it's too long to type out)

- Thinks the opacity in the online ad space and lack of disclosures is a good place for short activists to hunt

Embedded below is the video of Sahm Adrangi's presentation:



mbedded below is the slideshow pdf of Sahm Adrangi & Kerrisale Capital's presentation on short QuinStreet (QNST):



Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Selvan Masil Long Criteo, Short Cineworld: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Selvan Masil of Westray Capital Management who pitched a long of Criteo (NAS:CRTO) and a short of Cineworld (LON:CINE).


Selvan Masil's Sohn London Presentation

Long Criteo (NAS:CRTO)

Criteo is a French technology company with a market cap of $2.1bn that is listed on the Nasdaq.

What does Criteo do? It helps retailers to covert online shoppers using browsing behaviour to deliver targeted advertising. It does this by being directly integrated into the advertiser’s website. Criteo learns our preferences as we browse. More than two-thirds of its revenue is generated on mobile devices. It can link people’s identities across devices and it can send advertising to mobile, laptop, via Facebook as well as in-app.

What makes Criteo a good investment? It has a very strong position in a fast-growing market. Digital’s share of the advertising budget is projected to grow from 29% in 2015 to 43% in 2020. The fastest growing segment in digital advertising is programmatic. This segment, where Criteo operates, is growing at 25% CAGR 2015-2020.

It is the largest independent player in the programmatic space, third overall behind Facebook and Google. It’s 5x the size of the next independent competitor. Having an independent player is important for all sides. Many e-commerce retailers and web publishers don’t want to give Google and Facebook full access to their sensitive customer data. Facebook and Google value automated and scalable solutions and prefer to deal directly with advertisers.

Criteo has recently started integrating offline CRM data by using data from loyalty cards, credit cards and other unique indentifiers. That level of integration between off-line and on-line shopping is the holy grail for most retailers and will increase the value of Criteo’s database.

Every time internet users browse a website of one of its clients, Criteo tracks the entire purchasing and browsing activity regardless of how the user ended up on that website. Critieo sees more than twice the number of transactions than Amazon. In addition, it tracked users browsing and purchasing activity on 4bn products – more than each of Amazon, Alibaba and Ebay. This unparalleled scale should allow Criteo to send the right ads to the right person at the right time. It creates self-reinforcing network effects. The more clients you have the more data you collect. The more data you have the better the performance of your apps. That in turn helps you attract more clients and generate more data.

The value of the data can be seen in the click-through rates – the proportion of ads that generate a click - that are 4x higher than the industry average. They are second to Facebook on click-through and only just.

Criteo is virtually alone in the industry in charging advertisers based on post click sales. Most digital advertising companies still charge a fee every time the ad is displayed regardless of whether the consumer interreacts with it or not. As a result, many clients have given Criteo an unlimited budget as they only pay for advertising when they make a sale. More than 75% of Criteo’s revenues come from such clients. On average it generates 18x return on investment for clients.

Westray’s interviews with clients, competitors and publishers find that Criteo is consistently ranked best for performance, superior to even Google.

Criteo’s stock has de-rated recently on fears that a new version of Apple’s Safari browser will contain something called Intelligent Tracking Prevention that may disrupt digital advertising players. Masil believes that Criteo has the tech knowhow to be able to deal with this.

The company is undervalued on nearly all metrics. It will continue to grow revenue at a CAGR of 20% between 2016 and 2020 with even higher growth rates for EBITDA. Criteo is unusual among tech companies in that it is highly cash generative. At the end of 2017 the company will have 17-18% of its market cap in cash.


Short Cineworld (LON: CINE)

Cineworld is a cinema operator. Last week Cineworld announced its intentions to buy Regal, the second largest cinema operator in the US. The shares sold off 20%. Masil said that was not part of their original thesis but that the potential purchase of Regal reinforces their negative stance.

Cineworld is one of Europe’s largest operators with 226 cinemas and 2100 screens. It generates 55% of its EBITDA in the UK and Ireland. Most of the rest comes from eastern European countries. Two-thirds of revenue comes from ticket sales and one-third from selling food and drink.

-    The UK cinema market is mature and ex-growth.

-    The company has been expanding aggressively in the UK which is a flawed strategy.

-    Younger people go to the cinema less and instead consume content online.

-    It will be hard to put ticket prices up further. They have already been put up well ahead of inflation.

-    Cineworld is suffering a downturn in admissions per screen. A 5% decline in admissions per screen leads to a 15% decline in EBITDA

-    The structural pressure on the cinema industry is intensifying.

-    The period in which cinemas can show new films exclusively without them being shown online is reducing.

-    Amazon and Netflix are making their own content and growing their customer base rapidly

-    The performance of Cineworld shares has outperformed the sector for no good reason.

-    Cineworld trades at a forward P/E 18x 2018. Capex is high as the cinemas require constant refurbishing.


Be sure to check out the rest of the presentations from Sohn London 2017.