Fool’s “Small-cap Canadian stock is about to ‘catch on fire’ as it takes on The Trade Desk…”

What's being pitched by Motley Fool Canada?

By Travis Johnson, Stock Gumshoe, November 5, 2020

The last stock that Motley Fool Hidden Gems Canada teased turned out to be quite a success, despite my skepticism (that was Cargojet, which they talked up as the “Small-Cap Amazon of the North”)… so shall we look into another one?

Why not, right? It’s not like anyone’s reading my drivel this week anyway, not with everyone’s eyes glued to election results (if this keeps up, we’re all going to have the names of all the counties memorized in Georgia, Arizona and Pennsylvania).

This one I probably can’t be 100% certain about, since the clues are a bit light, but we’ll see what we can do… here’s how the Fool pitch from advisor Jim Gillies starts for this newsletter (which is “on sale” for C$199/yr):

“Insiders reveal one small-cap Canadian stock is about to “catch on fire” as it takes on The Trade Desk…

“When Motley Fool Canada first recommended The Trade Desk to our members in 2017, it was a newly debuted stock trading for roughly $50 a share… now it trades for $572 and the investors who listened are up a mind-boggling 1,018%!”

So that makes you sit up and pay attention, right? A 1,000% gain is worthy of a bit of excitement. I can’t confirm just when the Canadian arm of the Fool might have recommended The Trade Desk, though I do know that they’ve been using it in their teaser pitches this year as a “triple down” buy, and, of course, I’ve been covering TTD since the Gardner brothers at the Fool started teasing it for their Stock Advisor newsletter in the US (and I bought some shares myself) a little over three years ago. And it is up 900%+ since I bought my first shares, so I’d be delighted to find another such growth darling.

So what are the clues? Here’s what the ad says:

“… there’s a tiny Canadian small-cap stock that might be about to “catch on fire” as it takes on The Trade Desk….

“this company’s disruptive new innovation could do to advertising what Shopify has done to e-commerce and Robinhood to stock trading.”

And he says it’s “less than 1% the size of The Trade Desk,” in addition to being in at least a similar business… so what else? Do we get any other clues about how this small company “disrupts the world of advertising with its cutting-edge new technology?”

Uh, not really. So… ready for the Thinkolator? Our handy machine narrowed it down quite a bit, but can’t give us 100% certainly like we usually provide… so we’ll have to call this a partial guess, but this is very likely AcuityAds (AT.TO, ACUIF), whose stock has been on a nearly exponential rocketship over the past few months as they talked up and then announced a new digital advertising platform called Illumin… which does indeed sound somewhat similar to the programmatic software/advertising data services provided by The Trade Desk. This answer is buttressed by the fact that the Fool had a video Q&A session on November 2 that includes some comments from their analysts on AcuityAds, around minute 38, confirming that it has been a recommendation of Motley Fool Hidden Gems Canada recently (with part of the thesis being that the valuation gap with The Trade Desk would close). So… not 100%, but pretty close.

AcuityAds is still less than 1% the size of The Trade Desk, even after this run (market cap about $220 million for AT, versus about $31 billion for TTD), so it is easier to imagine ludicrous growth from these lower levels… what does the business actually look like?

Well, from what I can tell they’re really leaning into this new Illumin service — and were having some substantial trouble building up the company before that. I don’t know why, but revenue plateaued in 2018 for a bit and, like a lot of advertising companies, is still lower this year than it was a year ago (down about 10%).

Here’s how the company describes itself in its investor presentation:

“AcuityAds enables programmatic advertising through the operation of an independent DSP (Demand Side Platform).

“The Company‚Äôs DSP has, at its core, an internally developed AI algorithm which helps g