The pandemic has accelerated the shift in digital advertising towards programmatic buying, and with increasing ad spend comes bad actors looking to steal a cut. The ad exchange market is a challenge to monitor because, by nature, it’s designed to be open to allow for as many bids to be placed as possible from the buy side to generate top yield for publishers. The programmatic purchase happens in fractions of a second, so while having less platforms operating helps streamline the exchange (Trade Desk on buy side and, eventually, Magnite for the sell side), there is still fraudulent activity like false bids that need to be mitigated.
Enter Kubient (KBNT), a company that operates its own Demand Side Platform and Supply Side Platform, but more interestingly has proprietary software for detecting fraud during the microsecond prebid process, eliminating those bids. They have worked with esteemed companies, like The Associated Press, to increase their digital ad revenue dramatically by cutting out bad actors. Other programmatic platforms offer similar services, but don’t seem to be capturing as much of the fraudulent activity as Kubient’s software does, and thus they are getting recognized as a superior screener (and with ad fraud in the digital space expected to grow to $44B by 2022, businesses are paying attention). For prospective clients Kubient can investigate fraudulent activity before reaching out to them, so when they pitch there is already an action plan in place; it’s pretty hard to say no when during first contact you explain exactly how you’ll save them money.
What makes Kubient so compelling as an investment is they are relatively new (IPO was in August of last year), they are currently in the microcap range of $130M and have a miniscule share float under 6M shares. This small size gives retail investors an opportunity to in essence play “venture capitalist” and get in on the ground floor of what could very well be a gigantic company some day. It looks like they are an attractive takeover option too, as Kubient recently announced that they are working with Lake Street Capital Markets to provide Merger and Acquisition services, which means either a deal is being teed up or they are wanting a fair valuation of their company in the event of business overtures. And a deal could very well be in the works as the stock price jumped 46% yesterday. It makes sense for a programmatic player, like Trade Desk or Magnite, to buy Kubient to bring their superior anti-fraud software into their operations. And given the low share float and increasing interest from institutional investors, it won’t remain a microcap stock for long.
“There are three ways to make a living in this business. Be first, be smarter, or cheat.” –John Tuld in Margin Call