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Bidstack shares: a prime beneficiary of the Microsoft-Activision separation?

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BIDS shares could be an undervalued tech play to further diversify my portfolio for the 2020s and beyond.

Bidstack shares

Bidstack (LON: BIDS) shares could be one of the best undervalued tech stock opportunities to consider in 2023.

Growth stocks in the tech sector have seen their share prices devastated in 2022, as tightening monetary policy saw their ability to grow constricted, while investors sought the safety of inflationary hedges including gold and the US Dollar. In fact, Bidstack shares have fallen by 29% year-to-date to a shade over 3p each. But a fearful environment is where money is made on FTSE AIM.

Bidstack Group Plc

The same company was worth 36p per share in mid-2019. And it operates in the lucrative gaming industry, in 2019 a sector according to the Entertainment Retailer’s Association that was already worth more than the UK’s video and music sectors combined.

Indeed, video gaming is now a mainstream entertainment option, with the segment’s global revenue expected to grow by a CAGR of 7.67% until 2027, to extend to a market volume of $285 billion reaching 2.8 billion users.

Bidstack exists to win a slice of that pie.

Bidstack shares: investment case

Unlike many of my favourite FTSE AIM stocks, Bidstack’s investment case isn’t built on the value of commodities held underground. Instead, it claims to be the only platform where advertisers can buy native in-game advertising space within the $100 billion+ gaming industry.

It enables game developers to further monetise titles through its in-game brand activation platform, while allowing advertisers to gain invaluable exposure to an otherwise hard-to-access-market. Based on my understanding, BIDS does this with little to no disruption to the gaming experience.

After a recent $11 million raise, Bidstack’s funding-to-date now stands at $42 million, roughly on par with its market cap. This is a tiny valuation compared to the giants of the industry, but on the plus side leaves plenty of room for growth. As IAB Europe argues ‘gaming audiences will be a focal point of digital advertising during 2023.

And if this sounds a little too Metaversey, the company has set a $100 million annual revenue target from the US within the next three years, which is ‘starting to become visible.’

Brands are looking at video games as an inventory source, but currently there is no at-scale programmatic infrastructure to seamlessly aggregate supply across different video games or across multiple platforms.

Bidstack CEO James Draper

And that’s where Bidstack has spotted a potentially lucrative opportunity in the market. In the words of CEO James Draper ‘we’re moving towards being a gaming SSP, a pure tech play.’ 

Wheeling and dealings

Recent successes are numerous. The company, in partnership with Paco Rabanne and Starcom Worldwide, recently won the ‘Most Effective Use of VR and AR’ at The Drum Awards for Digital Industries 2022.

It’s signed a partnership agreement with Adscholars in India, a country where the market is growing by a CAGR of 30% to $7 billion by 2026. Lewis Sherlock, EVP of Technologies and Partnerships, thinks that India is an important strategic market for Bidstack, and this innovative new partnership will help extend our sales effort into previously untouched markets. Adscholars will become our first buy-side enterprise sales partner in the region.’

BIDS also signed an enterprise agreement with a ‘leading Asia-Pacific mobile marketing technology company with the ability to white-label the platform’ in July, and a multi-year deal with metaverse franchise, SimWin Sports.

Then there’s the deal with global mobile developer Outfit7 for its portfolio of games which boasts 470 million monthly active users, and a partnership with Unity as a Unity Verified Solution. BIDS’ Verified Solution status has been rigorously tested and will see the Bidstack SDK featured on Unity platforms as a ‘best-in-class’ monetisation solution for game developers.

Most excitingly, on 5 December it announced the ‘expansion of its exclusive native in-game advertising partnership with a leading, global AAA game publisher through the addition of two mobile titles,’ in addition to the previously announced initial title.

Draper thinks the development a ‘solid endorsement for the quality of our product and commercial teams and will further increase our scale and addressable audience in the US.’ While the name of the AAA developer has not yet been made public — though evidence suggests that EA is a strong candidate — there are US-wide campaigns already lined up to go live in these titles during 2023.

Developmentally, Bidstack plans to further its SSP capabilities through next year, and to expand data infrastructure to ingest third-party data sources for verification, viewability and attribution and reporting capabilities for audience activation and campaign optimisation.

Described as an ‘aggressive growth strategy,’ Draper is ‘happy to share the new revenue streams the Group is exploring, including licensing our proprietary technology, empowering IP rights holders to control their brand activations in the virtual world and the expansion of our gaming ‘SSP’, which now houses all ad-formats within the gaming ecosystem.’

Of course, it’s not all been roses. The company made the news recently for a contract dispute with entertainment platform Azerion, though it stresses that ‘contrary to the press commentary, there is no litigation with Azerion, and the contract with Azerion continues to operate as expected.’

In an interview with AdExchanger — well worth a read — what strikes me is Draper’s ground level understanding of what works within game advertising — and what doesn’t. He notes that ‘the gaming community resides on Reddit, and if you irritate them, you’re toast.’

He also realises that ‘If you play a game regularly, you know the layout of the maps and you know the controls instinctively. So, if there’s an advert served in that particular game, you’d notice it, because it’s the only thing you’re not used to seeing in there. That means your brand lift will be way higher than if it’s a game you’re not playing regularly.’

Microsoft-Activision

Microsoft-Activision: FTC opposition

A key risk for Bidstack was the consolidation of big tech, such as Microsoft, with the larger gaming companies like Activision. Realistically, Microsoft has the financial firepower to develop an in-game advertising solution similar to Bidstack’s. But as I argued earlier this year, FTC opposition means this deal is very unlikely to be going through. And now Bidstack has two clients to sell to.

It’s notable that several of the largest NASDAQ 100 companies own a streaming service of some kind: Apple, Amazon, Alphabet, and Meta (sort of). If Microsoft cannot acquire Activision, then an acquisition of Netflix could be back on the cards. But the very idea that the giant prioritised gaming over streaming should be enough to inform investors about the sector’s potential.

Bidstack had previously approached Microsoft for ‘middleware approval,’ though the larger company paused the process, perhaps in anticipation of developing its own internal solution.

But Microsoft has now acquired Xandr, which is running tests with third parties including Bidstack. If Microsoft cannot get the Activision deal through, Bidstack could become a tempting (though comparatively tiny) alternative.

And if not, the potential alone makes BIDS a solid long-term portfolio addition.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

Editor

Charles Archer is an experienced financial writer specialising in monetary law. With a background in stock market and private equity analysis, he’s worked for many years as a freelance investment au... Continued

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