Explosive growth in adtech during the 2000s led to major consolidation during the 2007-2012 period.  The tech giants (Google, Amazon, Facebook, Apple) took over programmatic adtech and left scraps for the remaining independents.  This led to a secular bear market in adtech stocks for much of the 2010s.  There were too many small adtechs chasing diminishing markets and so stocks were depressed.  This began to change in the 2017/2018 timeframe.  Why?  Because innovation with the giants began to stall.  They were comfortable with their moats and were not addressing the emerging needs from clients.  Explosive growth in mobility and a nascent connected TV market were being addressed with standard desktop-type offerings from the tech juggernauts.  Clients were seeking proprietary audiences and better analytics.  This opened the door for a wave of newcomers to enter and succeed.  Names like Magnite, Acuity, Tradedesk, Viant and Sabio were beneficiaries.  We expect the independents to continue to grow and gain market share until the next wave of consolidation begins.  We are staking our claim in adtech with Sabio, a high growth pureplay supercharging the connected TV landscape.

Why Sabio?

Sabio is a California-based adtech firm that beautifully fits our investment criteria: i) a strong management team that was not only able to weather the Covid storm but took the opportunity to streamline and focus into more profitable segments, ii) great customer base that is starting to divert significant sums from linear TV to Sabio’s connected TV offering, iii) unique analytics platform (App Science) that leverages Sabio’s mobility expertise to create unparalleled insights into audience profiles.  While early in the commercializing phase, this SaaS-based product offers a potentially valuable call option to shareholders, and iv) high margins driven by superior services – all too often, adtech companies tout their self serve platform as a unique differentiator.  The reality is that while shareholders love to hear “self serve”, actual paying customers are getting frustrated.  Sabio is achieving high gross margins even though it does not have the scale of much larger players.  The reason is that it delivers top-notch service to clients and proactively solves problems.  Adtech companies would be best served to refrain from pushing their software tools on customers until they have something truly unique to offer.

Overall, we look forward to more investors learning about how Sabio is addressing one of the fastest growing segments in adtech, connected TV.  Over 80% of US households now have a connected TV device vs. 30% ten years ago. The ad-supported model is coming to the connected TV market and Sabio is in a great position to reap the rewards.

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