The Tremor International (LSE: TRMR) share price has jumped 540% over the past 12 months. While past performance should never guide future potential, I think the stock still looks cheap despite this gain.
The TRMR share price outlook
Tremor International is a global leader in advertising technologies. Its primary focus is video advertising and it works with some of the world’s largest publishers, brands and advertisers.
Over the past 12 months, demand for online advertising has boomed, and Tremor has reaped the benefits. In its latest trading update, the firm announced that revenues in its fiscal first-quarter would range $55m-$60m. That is up from $32.1m a year earlier.
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Programmatic net advertising revenues are expected to grow 84-95% year-on-year. With its top line set to nearly double in the first quarter, management has forecast underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $25m-$28m for the period, up from last year’s figure of $0.5m.
I think these figures illustrate clearly why the TRMR share price has performed so well over the past year. I also think the group’s growth is only just getting started.
Booming market
According to estimates, the global online advertising market is projected to grow at a compound annual rate of 21% to nearly $1trn by 2025.
The company’s current revenue figures suggest turnover could total $240m for 2021. This implies the group has only a minuscule share of the global online advertising market. With this being the case, I think it could have the potential to double, or even triple, its market share over the next few years.
Still, I think it’s unrealistic to claim that Tremor has the potential to double its revenues every year going forward. The company could achieve this goal, but it’s improbable.
Instead, I think it’s more reasonable to say the business’s revenues will grow at least in line with the market. That implies annual revenue growth of around 21%.
Of course, this is just a projection. Tremor may outperform or underperform these figures. There’s no way of telling.
Large risks
The most considerable risk the company faces is competition from larger American rivals. Advertising market giants such as Facebook could quickly overwhelm the business if it wanted to grab its share of a particular market. This is a challenge management is always going to have to deal with, so that’s something I’ll be keeping an eye on going forward.
Another risk the company may have to deal with includes potential regulations on the gathering and use of data, which many online advertising businesses rely on to serve ads to the correct customers.
Nevertheless, despite these significant risks, based on Tremor’s existing size and the potential for growth over the next few years, I believe its share price looks cheap at current levels. Therefore, I would buy the stock for my portfolio today as a long-term growth investment.
