Adverty - the future of advertising

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Let’s start a thread for the Swedish company Adverty, which specializes in in-game advertising. The company was founded in 2017 and is followed by Redeye.

https://www.redeye.se/articles/download-file/b4ca1275-904c-34e9-b10b-4abe19231d69
Redeye’s forecast:

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Adverty offers a platform where users can create advertisements to be displayed within games. In-game advertisements will consist of in-play and in-menu ads (the latter to be released in Q1 at the latest). In-play ads appear in various places within the game, and in-menu ads appear in the game’s menu view, as their names suggest. The following video illustrates this well.

Adverty operates on almost all platforms except consoles (PC, mobile, and VR/AR). The target audience is huge - almost 3 billion people and still growing! Gaming is clearly on the rise, and advertising is moving more and more online. A significant advantage of ads displayed through Adverty is that ad blockers, which are growing in popularity, are not effective against integrated ads. Adverty generates its revenue and profits within its ecosystem according to the following formula (from RE’s report, as it’s excellently explained):

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Adverty reaches roughly 95 percent of all the DSPs through its SSP network. The SSPs take
approximately 15 to 20 percent of the ad revenues. And the DPSs adds a fee on top of the
sale price. For instance, the purchase of an ad that would cost USD 100 would be sold on the
DSP-platform for 105 as they add a fee on top of the selling price. The SSP would then take
15-20 dollars leaving 80 dollars for Adverty and the publisher. Adverty’s revenue share with
the publisher is generally between 30 to 50 percent of the revenues going to Adverty.
Depending on the customer, of course. Bigger and more popular titles could lead to a lower
revenue share for Adverty. Adverty charges its advertisers based on the CPM model, which
charges the customer per thousand impressions or views. The average CPM price it charges
in the EU and the US is USD 5-6, and the average CPM price in LATAM is USD 3.

One of Adverty’s game segments offers a particularly interesting advertising method: the VR/AR segment. In 3D environments and games that support them, products can be advertised in a very interesting and attractive way:

There are still many risks involved, but there are at least as many positive drivers for accelerating and growing earnings. In-game advertising and gaming will grow in the future, and Adverty has a great opportunity to grow and expand into a global, profitable market leader!

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Tukholman löytötori - ruotsalaiset pienyhtiöt tutkan alla
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I don’t really know anything about Adverty, but for the sake of discussion, I’ll point out one of its competitors that is collaborating with a company I follow: Frameplay

Frankly, Adverty’s demo looked better, as they’ve already started working on the VR side, but then again, they also have twice the workforce: a whopping 5 people according to Nordnet. Frameplay has started collaborating with an SSP called Magnite, which isn’t listed among Adverty’s partners at all. It’ll be interesting to see if any lines have already been drawn in the sand here. I’ll read the red eye report soon.

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*Article for subscribers only.
Kauppalehti did an article about this company in 2017. CEO’s comment: “Virtual reality will break through in a few years, perhaps in 2019, believes Niklas Bakos, CEO of the Swedish technology company Advrty.”

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https://twitter.com/insynsmannen/status/1338907997511315464?s=21

Additionally, another piece of news. The CEO sold a portion of their ownership in December 2020. However, there’s a good reason for this sale. They had taken out a large loan some time ago to bring the company to the stock exchange, and now they sold shares to pay back the loan to the bank.

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I don’t fully understand what Adverty’s competitive advantage is compared to its competitors. The market is so young that it’s difficult to say which companies will actually succeed. Additionally, I’m not really sure how the cash flows are distributed among these ad tech providers, platforms, and game developers. IMO, one of these technology developers will succeed, but I don’t know if it will be Adverty. At this stage, I’ll refrain from taking a position, but I’ll keep an eye on it in case the price and risk align sometime. :slight_smile:

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It looks like the EV/Sales ratio would be 14 in two years, based on the assumptions that 1) the business will experience a sharp increase from here (+2000% revenue) and 2) this can justify the very stretched multiples. (Red Eye analyzed at a share price of SEK 9.1, now at 14.)

With these assumptions, the expected return for two years is 0%. The bear case is honest, which is a plus.

Surely someone has a problem with this? Really now?

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Inderesin kahvihuone (Osa 1)
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You can spot Adverty ads in games. A Cyberpunk ad in Critical OPS. The AD mark in the lower-left corner of the ad indicates that it is an Adverty ad.

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Edit: Let’s bring up a few more points.

Adverty started collaborating with SuperAwesome last August. The collaboration focused on kid-friendly advertising. A company called Epic Games, in turn, acquired SuperAwesome last September. Announcing the next chapter of SuperAwesome: joining Epic Games - SuperAwesome

Adverty also received a patent in the USA.

Here’s an excerpt from RedEye’s report regarding Brainimpression.

“Adverty has developed its own proprietary technology for determining ad viewability that uses
scene info and ad placements in the user’s field-of-view to evaluate if an ad is viewable or not.
It has a patent-pending for this technology that is called BrainImpression. The data can be
extracted, and the publishers and advertisers can get real-time data on how many
impressions the ad has received and how long consumers view ads. This is possible, thanks
to Adverty’s Unity SDK. It has filed two patents for this technology in 2017 and a third patent
in 2018, related to the technology.”

About the aforementioned Unity SDK:

" Adverty AB (publ) announces the release of its Unity SDK on Unity Asset Store, providing developers with easy access to its patented ad technology for unobtrusive in-game advertising."

Press release regarding the Unity SDK: Adverty: The In-Play™ advertising platform

Swedish followers of Adverty consider Anzu (https://www.anzu.io/) to be their biggest competitor.

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And if you’re interested in following other investors’ discussions on Discord, here’s a link.

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I joined that group myself. They have compiled a list of where they have spotted Adverty’s ads or where they have collaborations. It’s a pretty comprehensive list and the discussions include screenshots of ads in games.
Customers/advertisers:

Activision, Subway, Warner music, Bayer consumer health, Storck, Sony (PS5 + 3 games), Disney (disney+) Sweden, Denmark & Norway, Facebook & messenger, Lyft, Cyberpunk 2077, Sport fishing, Riot games (Valorant), Banggood (Flip runner) Vietnam, USA, Italy, Carlsberg (Flip runner) Vietnam
McDonalds (Flip runner + critical ops) Poland, Israel & Ireland., Amazon - India, Shopee - Malaysia/Indonesia, Spotify - Australia, Audible - USA, Lipton - India - Fliprunner, Porsche -, Taiwan - Flip Runner, Gojek - Singapore/Indonesia - Flip Runner, India - Google Play - Flip Runner, India - Weejuns - Flip Runner, Thailand - Google play - Flip Runner, Prisjakt - France - Flip Runner, Vyepti - USA - Flip Runner, Starhub - Singapore - Flip Runner, HD - Austria/Slovakia - Flip Runner, More Home - Malaysia - Flip Runner, Maxis Zerolution - Malaysia - Flip Runner, MaBelle - Hong Kong - Flip Runner, Nordetia Clinics - Greece - Flip Runner, Banca Cambiano - Italy - Flip Runner, Link - Hong Kong - Flip Runner, Pandamart - Hong Kong - Flip Runner, NCG - Singapore - Flip Runner, Smokefree Oregon - USA - Flip Runner, Blastarama - Czech Republic - Backflipper, Sephora - USA - Flip Runner, Bud Light - USA - Flip Runner, Häagen-Dazs - Hong Kong - Flip Runner, LG - India - Flip Runner, L3harris - Australia - Backflipper, Current - USA - Flip Runner, Soy Joy - Hong Kong - Flip runner, Favor - USA - Flip Runner, Grubhub - USA - Fliprunner, Nissan - Sweden - Flip Runner

https://twitter.com/adverty/status/1347163383238422528

Direct link to the article
https://digachan.com/2021/01/06/adverty-releases-in-game-ad-sdk-on-unity-asset-store/

Here’s another YouTube clip from Adverty’s account.

From RedEye’s report regarding Anzu
“Anzu has a patent filed for
viewability technology, like Adverty’s BrainImpression technology.”

Regarding this, a Discord user from Sweden received a response from Adverty.

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→ Anzu has filed a similar patent for visibility about a year after us (the scope is applied globally from the date you apply) so we think it may be difficult for them to get through theirs.

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So you can take monitoring positions on something like this? The valuation is certainly sky-high.

I personally think this is quite potential, and advertising within games would be quite logical. I’ve also seen a few of them in games now that I’ve paid attention. In addition, I think they advertise quite interesting clients/brands (see list above).

RedEye’s bear case is, of course, a very realistic scenario.

Edit: I think it’s good that the forum has many threads for different companies. Sometimes you can find excellent companies for the long term.

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"The issue of brand safety remains a key concern for clients in entering the gaming space. Publicis Play will provide ongoing consultancy to clients on how to operate safely, effectively and authentically amongst gaming audiences, and will collaborate regularly with players, industry influencers, and gaming strategists. "

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Cost of Goods Sold (CoGS) is a variable cost that will increase as sales increases. Adverty receives 30 to 50 percent of the net sales,and the rest is shared with the publishers. We, therefore,estimate a CoGS of 65 percent on average. The business is still highly scalable,even though the gross margin is on the lower end. Adverty has accomplished a lot with a very small team,and the technology platform can handle a large number of ads.

I’m not an expert in the field, but I’ve seen gross margins of 10-20% in mobile game ad companies, so the 35% that the company is aiming for sounds pretty wild anyway. Maybe ads get a better price in the VR sector? In any case, not much profit seems to be left from revenue growth, so is this a business where an investor wants to be involved?

…Of course, if revenue grows by 2000% every year, the investor will eventually get their money too :grimacing:

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The first thing that comes to my mind is, why on earth would any player who pays for a game want to see ads inside the game as well? That’s a huge turn-off for me right away. It’s a different story if the game is free.

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Well, probably not many. But how many game companies want ad revenue? And how many advertisers want good, accurately targeted visibility to the right audience?

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Q3:sta pari lainausta

“The interest in our new product portfolio at media agencies is greater than we could have hoped for and we now have a handful of far-reaching collaborations with game developers around the integration of In-Play In and In-Menu ™, hoping to launch our technology in most games both before the end of the year and during the first quarter of next year.”

" Programmatic advertising is basically defined around clickable ads, where media buyers usually measure their KPIs in ad clicks, clickthrough rate and conversion rate. With our In-Menu format, we now have a fully compatible offering for all media industry’s programmatic buying platforms (DSPs), such as The Trade Desk, Verizon Media, MediaMath, Google DV360 and other major players, which most media agencies use. It is our hope and strategic plan that In-Menu ™ will accelerate our growth in 2021, in connection with In-Play ™ over time establishing brand awareness ( branding ) both in mobile gaming and in the programmatic channel in general."

“We also plan to enter into more similar partnerships in 2021, to maximize the opportunity to find and buy our in-game offering programmatically.”

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“Thanks to the popularity of the F2P format, 98 per cent of gaming revenues come from in-game transactions. That, combined with the size, diversity and continued growth of the market, make it the optimum environment for advertisers. Throw programmatic into the mix – with its targeting, flexibility and effectiveness – and it is clear to see why it is fast becoming an unmissable opportunity for brands who want to make an impact.”

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kts. : Adverty enters exclusive framework agreement with Europe's leading entertainment sales house Venatus Media - Adverty AB

Edit: Press release for the patent has been issued

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I bought a thousand shares so I don’t forget the company exists. My guess is that if the company keeps up its momentum, someone will acquire it, because the industry has such strong tailwinds.

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