We recently compiled a list of the 8 Best AdTech Stocks to Buy Now. In this article, we are going to take a look at where Atlassian Corporation (NASDAQ:TEAM) stands against the other AdTech stocks.
It goes without saying that the advertisement technology industry happens to be an exciting and ever-evolving sector, as digital advertising continues to dominate the market trends and remains at the forefront when it comes to strategic marketing. According to industry data by Allied Market Research, the global AdTech market was pegged at $748.2 billion in 2021 and is expected to reach $2.9 trillion by 2031. This demonstrates a CAGR of ~14.7% from 2022 to 2031.
This growth comes off the back of growing digital and internet penetration, increased usage of advanced technology like AI and machine learning, improved prospects for the gaming industry, and growth in social media apps including Facebook, WhatsApp, and others. Some of the top trends dominating the AdTech industry include higher usage of connected TV (CTV) advertising, in-app advertising, and interactive ads.
Growth prospects of the AdTech industry
The AdTech market has been bifurcated into solution, advertising type, size of an enterprise, platform, etc. The AdTech industry includes a wide range of companies and products, such as demand-side platforms (DSPs), supply-side platforms (SSPs), ad exchanges, data management platforms (DMPs), and more. Experts are of the view that the global supply-side platform (SSP) market size should touch ~$117.32 billion by 2033. This means that the industry should compound at ~13.3% from 2023 to 2033. This growth is expected to stem from technological advancements, higher consumer demand, and supportive government policies.
In the same vein, the demand side platform software market size should touch US$120.1 billion by 2033 on the heels of an improved trend of programmatic advertising and, the need for better targeting along with measurement capabilities for online ads. While the AdTech industry seems promising, inclusion of artificial intelligence (AI) makes it even more appealing.
AI’s Role in AdTech – Opportunities and Challenges
Global AdTech industry continues to prepare for the complete deprecation of third-party cookies by Google, which makes up ~65% of the web browser market share. This transition seems to be a critical step for enabling user privacy and data security. Artificial Intelligence, because of its capability to process vast amounts of data, should play a crucial role.
Research suggests that ~54% of businesses believe that AI offers advertising cost savings and efficiencies and ~30% of marketing professionals decided to earmark more than 40% of their marketing budget to campaigns that are AI-executed. The advent of smart speakers, voice search, and podcasting can help advertisers in creating fresh avenues to connect with target audiences with the help of audio and voice technology.
While advertisers can exploit the opportunities available in the AdTech industry, they need to be wary about challenges such as Ad fraud. These frauds are caused mainly because of bot traffic, domain spoofing, or ad stacking. Some other challenges include inventory quality, ad creativity, and brand safety.
AI and ML are revolutionizing digital advertising by enabling advertisers to assess vast amounts of data in real time. As a result, the advertisers can make data-driven decisions for optimizing ad campaigns. Advertisers now use algorithmic advertising, personalization, and performance metrics to maximize ROI.
AI algorithms help in automating media buying, making sure that ads reach the target audience. Personalized ads can be delivered using AI-powered recommendation engines and these engines enable real-time tracking, which can help make quick adjustments to fuel success.
The global AdTech industry is expected to compound in the mid-teens range over the next decade. Given that it’s still early in its growth story, now is the time to look at some of the best AdTech stocks.
Our Methodology
For this article, we selected the holdings of SmartETFs Advertising & Marketing Technology ETF and ranked them in ascending order of the number of hedge funds holding stakes in them. For the purposes, we sifted through Insider Monkey’s hedge fund data for 1Q 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A group of executives in a board room discussing the latest software innovation.
Atlassian Corporation (NASDAQ:TEAM)
Number of Hedge Fund Holders: 51
Atlassian Corporation (NASDAQ:TEAM) is engaged in producing software that helps teams work together more efficiently and effectively. It offers project planning and management software, collaboration tools, and IT help desk solutions.
The company’s 4Q 2024 was a difficult one, as its R&D expenses went up by 24% YoY. This increase was because of investments in AI. This growth in expenses was even higher than its revenue growth of 20% YoY in 4Q 2024, and this made investors worry about its future. After all, demand for AI is not slowing anytime soon. Nonetheless, the company is one of the largest players in the enterprise productivity space.
Earlier, it was just like other software companies. It licensed its software which can be used by businesses. Now, the company is focused on getting more customers for subscription services on the cloud. Atlassian Corporation (NASDAQ:TEAM)’s cloud revenues continue to increase, which can act as an actual growth catalyst for the company. In 4Q 2024, the company saw its cloud revenues increase by ~31%. The higher cloud revenues might result in increased margins, higher efficiency, and a predictable income stream (i.e., subscription).
The number of customers spending over $1 million annually saw an increase of 48% YoY, reflecting momentum in serving enterprise customers and maintaining an efficient go-to-market model.
Analysts at The Goldman Sachs Group initiated the coverage on shares of Atlassian Corporation (NASDAQ:TEAM). They raised their rating from “Neutral” to “Buy,” increasing the price target from $200.00 to $230.00 on 2nd August 2024.
A total of 51 hedge funds tracked by the Insider Money database held stakes in the company as of Q1 2024.
Artisan Partners, an investment management company, released a 1Q 2024 investor letter and mentioned Atlassian Corporation (NASDAQ:TEAM). Here is what the fund said:
“Among our top detractors were Atlassian Corporation (NASDAQ:TEAM), ON Semiconductor and Exact Sciences. Atlassian’s earnings results met expectations for cloud revenue growth. However, this was insufficient for investors to support the stock’s momentum after strong recent performance. While parts of its cloud business, such as enterprise, are exceeding expectations, there are signs of weakness among small- and medium-sized companies, where pressures persist in paid seat expansions. We trimmed the position due to valuation concerns; however, we remain bullish in the longer term and are building conviction around its ability to leverage generative AI to drive accelerated cloud revenue growth.”
Overall TEAM ranks 7th on our list of the best AdTech stocks to buy. You can visit 8 Best AdTech Stocks to Buy Now to see the other AdTech stocks that are on hedge funds’ radar. While we acknowledge the potential of TEAM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering strong returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TEAM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
