How to Buy Direct Digital Holdings Stock

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Contributor, Benzinga
January 27, 2022
$24.45
1.37[5.94%]
Last update: 4:47PM (Delayed 15-Minutes)
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Open23.460Close24.120
Vol / Avg.148.043K / 356.652KMkt Cap348.912M
Day Range22.630 - 24.80052 Wk Range1.960 - 24.800

Enshrined in antiquity, one of the earliest proverbs associated with warfare states that the enemy of my enemy is my friend. In a twisted case of schadenfreude — literally the compound of the German words “harm” and “joy” — the streaming content service industry fortuitously benefitted from a catastrophe that largely impacted its rival linear television segment.

According to a May 2020 report by The Wall Street Journal, the “largest cable and satellite TV companies lost more than two million customers in the first three months of the year.” It went on to note that the fallout was the sector’s sharpest decline on record, with restaurants, bars and hotels reeling from the COVID-19 pandemic joining individual retail customers in canceling or pausing their subscription services.

Known as cord cutting per industry parlance, the migration to on-demand streaming platforms has long been a worrying affair for linear TV service providers. However, the global health crisis poured salt on open wounds as worldwide mitigation efforts forced collegiate and professional sports leagues to temporarily shutter. In turn, the last vestige of incentivization on the consumer front fell ignominiously.

Amid the rubble, though, streaming services didn’t emerge as the only victors. The digital advertising sector, which facilitates targeted consumer engagement likewise profited, setting up an intriguing debut for Direct Digital Holdings Inc.

What is Direct Digital?

Billed as an end-to-end full-service programmatic advertising platform, Direct Digital is one of a growing number of competitors in the advertising technology (AdTech) space. Primarily, the company focuses on “providing advertising technology, data-driven campaign optimization and other solutions to underserved and less efficient markets on both the buy- and sell-side of the digital advertising ecosystem.”

Unlike linear TV where advertisers must adopt a spray-and-pray model, the unique construct of streaming platforms facilitates programmatic advertising initiatives, defined by Harvard Business School as “the use of automated processes to buy, place and optimize advertising.” The latter attribute is particularly important as AdTech clients can leverage digital innovations to funnel ad campaigns to audiences most receptive to engagement and ultimately, conversion.

When is the Direct Digital IPO Date?

While the broader market is off to a choppy and less-than-encouraging start, the sector for new listings remains rather robust. Direct Digital will commence its initial public offering (IPO) — or the first time a private enterprise distributes its shares for public (retail) investment — on Jan. 28, 2022. Shares will trade on the Nasdaq under the ticker DRCT.

Under the terms of the deal, the Houston, Texas-based AdTech specialist plans to raise $32 million through the offering of 4 million shares. Management anticipates a price range between $7 to $9 per share, and at the midpoint of this spectrum, Direct Digital will command a market value of $123 million. The Benchmark Company and Roth Capital represent the joint bookrunner for the IPO.

Undoubtedly a cause for celebration for Direct Digital and its early stakeholders, its entrance into the IPO calendar at the present juncture imposes unique risks and ambiguities that prospective investors of DRCT stock should be aware of.

First, the benchmark S&P 500 index has struggled for traction, shedding close to a double-digit loss on a year-to-date basis. Though circumstances can always improve, growth stocks — which would include DRCT — face especially stiff headwinds. With the Federal Reserve signaling three rate hikes for the new year, the subsequent rising of borrowing costs disincentives businesses from seeking capital loans. In turn, investors may continue to rotate into established, stable asset classes.

Second, the streaming industry, while still an unquestioned powerhouse within the broader entertainment arena, is raising at least a few eyebrows. As Benzinga staff writer Adam Eckert reported, Jefferies analyst Andrew Uerkwitz substantially lowered his price target for Netflix Inc. (NASDAQ: NFLX) shares to $415 from $737.

In a note to investors, Uerkwitz stated “We are confident in being in the middle innings of streaming penetration, but now see it taking much longer adding uncertainty.” Further, on “the adjacency front, we believe Netflix isn't moving fast enough.”

True, the above circumstances directly relate to the streaming giant. However, disappointing subscriber growth or even losses would not necessarily be unexpected for the industry. E-commerce transactions — essentially the outcome that AdTech agencies hope to catalyze — has been declining as a percentage of total retail sales since the second quarter of 2020.

Finally, digital entertainment may become the unfavorable recipient of the boomerang effect as the return of sports and the critical mass of collective cabin fever culminate in explosive demand for in-person analog experiences.

Direct Digital Financial History

Although some of the wider circumstances surrounding streaming entertainment platforms — and by logical deduction the AdTech sector — present concerns for Direct Digital, the company commands the ability to sidestep obstacles that its blue-chip peers face. Flying under the radar, Direct Digital mainly targets underserved and less-efficient markets. Such a niche could allow the company to accrue a dominant segment-specific presence.

Furthermore, as a comprehensive service, Direct Digital provides its programmatic acumen for both the buy side and sell side of the advertising spectrum. Regarding the former, this category involves enterprise-level clients purchasing the delivery of promotional content to users through various online and digital channels, per the company’s IPO prospectus. Buy-side campaigns leverage multiple channels and platforms like social media, email and search engines.

On the other end, the latter category encompasses corporate clients acquiring the underlying supply side platform (SSP) or AdTech service, enabling “publishers to sell, manage and optimize the ad inventory on their websites in an automated and effective way. The SSPs help the publishers monetize the display ads, video ads, native ads on their websites and mobile apps.”

Of course, the infrastructure of digitalized communications, whether that be streaming, online shopping, web browsing or any number of internet-related activities, allows the tip of the spear of the AdTech industry to be exceptionally acute. Every click and every response “can be tracked, measured and reported to the advertiser in real-time,” enabling Direct Digital to wield deep-seated engagements impossible in the analog era.

Perhaps most importantly, the company isn’t merely gaslighting prospective investors with glossy brochures. Instead, the AdTech firm is delivering the goods, with revenue of $25.2 million in the nine months ending Sept. 30, 2021 up over 329% from the nearly $5.9 million in sales in the year-ago comparison.

Additionally, Direct Digital posted a net income of $623,701 in the first three quarters of last year, which, while a small nominal figure, is a dramatic turnaround from the $380,490 net loss suffered in the same frame in 2020.

Direct Digital Potential

One of the clear attracting points for DRCT stock is the potential addressable market. According to Verified Market Research, the global AdTech industry’s software segment alone could reach a valuation of $29.85 billion. While Direct Digital is currently focused on underserved markets, an opportunity for organic expansion clearly exists.

Another possible catalyst is DRCT’s valuation, which would qualify for its inclusion into a list of micro-capitalization stocks or even nano-cap stocks. Thanks to the law of small numbers, any number of positive catalysts of varying magnitude could send shares higher.

At the same time, however, the mathematical principle works the other way as well. Fundamentally, the stakes are raised higher for DRCT stock in that the underlying company is focused on lesser-served markets. While that allows for a higher probability of sector dominance, there might not be enough fuel to keep the fire going.

How to Buy Direct Digital IPO (DRCT) Stock

Those interested in DRCT must acquire shares at the open, which necessitates knowing how to buy stocks. Below is a quick guide.

Step 1: Pick a brokerage.

Because the best brokers compete on similar consumer incentives, focus your efforts on finding the platform right for you.

Step 2: Decide how many shares you want.

All new listings are risky because of myriad unknown factors, so engage this IPO with a balanced share count.

Step 3: Choose your order type.

Before trading, learn these market concepts.

  • Bid: The buyer’s best offer for a stock.
  • Ask: The seller’s lowest acceptable price.
  • Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
  • Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
  • Market order: Market orders guarantee fulfillment but only at the current rate.
  • Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
  • Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.

Step 4: Execute your trade.

Follow these steps to execute a market order:

  1. Select your action type (buy or sell).
  2. Enter the shares you want to acquire (or sell).
  3. Hit the Buy (or Sell) button.

Follow the same sequence for limit orders (but include your execution price).

DRCT Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

DRCT Pre-IPO

Unfortunately, no pre-IPO opportunity is available for DRCT stock.

Going Big by Going Small

With consumer expectations soaring in the digital realm, AdTech service providers command substantial relevance. However, the competitive arena has Direct Digital seeking a smaller niche, which could lift DRCT stock yet would also face the risks associated with a limited reach.

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About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.