TubeMogul 'High Quality' Way To Play Digital Video Growth: Stephens

• TubeMogul, Inc. TUBE has seen an 8.62 percent increase in its share price over the past one month.
• Stephens’ Brett Huff has initiated coverage of the company with an Overweight rating and price target of $20.
• Huff believes that there is significant upside to the stock, driven by several factors, including meaningful growth in digital video ad spend.

According to the Stephens report, global digital video ad spend is projected by Magna Global at $15 billion for 2015, with spend expected to grow at a CAGR Of 30 percent through 2019. This implies that TubeMogul’s revenue TAM could be $6.5 billion.

Given that the company has only penetrated 3 percent of the market, Huff believes that there is room for significant market share gains. However, even at 3 percent market share, 30 percent growth in spend for the next few years would prove positive.

Huff also believes that the “revenue opportunity in programmatic TV is large and growing.” Global programmatic TV spend is expected to increase from $240 million in 2015 to $17 billion by 2019.

“If TubeMogul captures even only a small portion of that spend at a reasonable take rate it would be a meaningful incremental growth driver,” Huff stated.

In addition, the company has an industry leading product, which differentiates it from the competition due to its features, focus and independence, and allows TubeMogul to benefit from market growth.

The company is also expected to benefit from the ad spend forecasted for the 2016 election cycle, outperforming the consensus revenue expectations for 2016.

“TubeMogul should see margin expansion and more revenue predictability as the Platform Direct business becomes a larger part of total revenue,” the report added.