BUY TECH MPIRE LIMITED ANALYST RESEARCH. ASX:TMP Ticker Code. A$0.26 Current Price. A$0.81 Target Price TMP TURNS PROFITABLE, OUTLOOK REMAINS STRONG

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1 Vested Equities Research ANALYST RESEARCH TECH MPIRE LIMITED BUY 3 OCTOBER 2017 TMP TURNS PROFITABLE, OUTLOOK REMAINS STRONG A$0.26 Current Price A$0.81 Target Price ASX:TMP Ticker Code CONTACT Address Phone & Fax Online Vested Equities Level 11, 50 Cavill Ave Surfers Paradise QLD 4217 Toll Free: Phone: Fax: contact@vested.com.au Website:

2 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Vested Research 1 Price (3 Oct 2017) AUD 0.26 Target Price AUD 0.81 Recommendation TMP vs. ASX Index (Rebased) Price Performance BUY Absolute 1m -1.8% 3m -0.3% YTD 75.0% YTD Range (AUD) MCap (AUD m) 20.5 Forecasts TMP S&P/ASX E 2019E 2020E Sales (AUD m) Op. profit (AUD m) Profit (AUD m) P/E (x) EV/EBITDA (x) EV/Sales (x) EBITDA margin (%) NI Margin (%) ROE (%) ROA (%) Source: Bloomberg, Vested Estimates Tech Mpire is a digital marketing intermediary, that offers performance-based online and mobile marketing solutions via a Cost Per Action (CPA) platform to their clients. TMP s competitive advantage is the company s proprietary software, (i) nxus. (analyses trillions of data points across thousands of sources of web traffic to drive app installs for clients marketing campaigns. (ii) TrafficGuard. (blocks fraudulent traffic and ensures that app installs are real, revenue generating users. This results in superior conversion ratios for the advertiser, ultimately delivering an improved ROI for the client. The company has turned profitable, whilst continuing to invest in their technology. Online advertisers are assigning larger portions of marketing budgets to performance based advertising service providers such as TMP, seeking to increase their campaign reach and optimise their marketing spend. TMP s proprietary IP essentially offers a risk-free advertising solution to their clients, making their services an attractive proposition to online advertisers. The global mobile advertising market is expected to reach $215 billion by We see the combination of TMP s nxus and TrafficGuard software, their Asia Pacific growth strategy and experienced management team as drivers of the company s ability to leverage opportunities in the global mobile advertising market. We initiate coverage on TMP with a BUY rating and a target price of AUD 0.81, implying an upside potential of 189%. Investment Highlights Turns profitable, substantial de-risking: We believe that the company has de-risked substantially since moving to profitability this year and offers a substantial expected CAGR of 108% in net profit over FY TMP has recorded its first annual profit since relisting two years ago. The company reported FY17 profit of AUD 417k, compared to a loss of AUD 3.6m in FY16. New CEO with extensive ad-tech experience: The company s growth strategy is being led by the new CEO Mr. Lee Hunter,

3 2 who has been put in place to drive growth, including expansion in the Asia-Pacific region. Mr Hunter brings extensive experience in the global online advertising industry from working with leading ad-tech innovators in Sydney, London, and Silicon Valley. He is a former senior Google executive, most recently serving as the Head of Marketing Strategy and Innovation for Google Asia-Pacific. nxus and TrafficGuard offer significant competitive advantage: nxus is TMP s proprietary technology product that automates and scales CPA marketing campaigns. It is fully automated and offers superior ROI to TMP s clients. In 2017 nxus delivered over 26 million app installs for TMP clients, and drove a 27% increase in revenue on a per client basis. It has processed in excess of 2 trillion data points since its initial development. Competitors have traditionally used manual, opaque and unsophisticated methods to build advertising campaigns. We believe nxus will help in gaining traction in the Asia Pacific region and continue to grow revenues in North America through: 1) automated demand and supply mediation, 2) real-time optimisation, 3) quality assurance, 4) Big Data enabled tracking and transparency, and 5) creating supply to match global demand. In addition to this, each completed advertising campaign provides additional insight into sources of online advertising supply. Given TMP has operated nxus over ~9 years, it has the big data competitive advantage of trillions of campaign data points. TMP s big data set is growing exponentially and provides a significant barrier to new entrants. Development of TrafficGuard: In late 2016, the company released an innovative technology to block invalid conversions for their clients. The program roll out appears to have been successful. TrafficGuard has identified and blocked over 2.5 million invalid conversions since inception. This technology has been welcomed by the company s high value clients, who are increasingly aware of this global issue of fraud in the performance marketing space. TrafficGuard ensures clients advertising campaigns are reaching real people, contributing to improved conversion rates and ROI for the advertiser. Robust business model: TMP is a performance-based marketing company, and acts as an intermediary between its advertising clients and growing network of partners. Performance-based marketing involves the CPA model, with the marketer earning a margin only on tangible

4 3 outcomes/results, such as a product sale, download or customer conversion. Advertisers and partners are billed and paid as and when the actual measurable goal has been achieved. This reduces the marketing spend risk for both advertisers and marketers. Thus, the advertiser would receive a greater return on investment (ROI) from the CPA model. Global client base: TMP s clients represent some of the world s biggest brands, ranging from technology giants to food majors. TMP delivered over 26 million conversions/app installs to more than 300 advertisers in FY17, up 48% y-o-y. TMP has the ability to reach over half a billion mobile users on a daily basis. Valuation: We arrive at a target price of AUD 0.81 using the DCF approach, assuming a WACC of 14% and terminal growth of 3%. We expect TMP s earning base to grow more smoothly over time as it expands and diversifies its revenue base across verticals, regions and seasons. Industry Overview Online advertising is being used on an ever-increasing scale to build ideas about a brand, product or service and broadcast them to ensure that the masses connect with the product/service instantaneously. Online marketing is one of the most efficient forms of marketing, as it has global reach, low cost and the ability to change in real time. Online advertising consists of avenues such as marketing, search engine optimisation, search engine advertising, social media marketing and social media optimisation. It offers the following advantages: Wider reach: Online marketing has a wider reach compared with traditional means of marketing. Geographical boundaries are irrelevant and, therefore, a wider market can be tapped through online marketing. Brand awareness: Through online marketing, companies create a virtual image for the brand. This contributes to the brand s success and longevity in the age of digitisation. Creativity: Online marketing offers substantial room for creativity, as it is relatively easy to create customised content. As a result, brands attract positive attention and garner significant leads in a short period of time.

5 4 Global digital advertising spending totalled an estimated USD 195 billion in 2016, according to Statista. Online advertising already exceeds the combined total of newspaper and magazine advertising spend, and is projected to overtake TV advertising to become the largest advertising medium globally. EXHIBIT 1: DIGITAL ADVERTISING SPENDING WORLDWIDE (USD BILLION) E 2017F 2018F 2019F 2020F SOURCE: STATISTA Digital advertising space is a fast-growing market and is projected to reach USD 335 billion by North America is a major contributor to this revenue, followed by the Asia-Pacific and Europe. The global digital advertising industry is dominated by US-based companies such as Google, Facebook, Twitter and Snapchat. Google has been one of the frontrunners in the online advertising space. Google ads are used extensively to promote businesses, products and services on the internet. Similarly, Facebook is a major online marketing avenue with more than 2 billion users on its platform. EXHIBIT 2: US INTERNET ADVERTISING REVENUE (USD BILLION) $80 $60 $40 $20 $ Non- Mobile Mobile SOURCE: COMPANY PRESENTATION, IAB/PWC INTERNET AD REVENUE REPORT, 2016

6 5 Internet advertising growth is driven by mobile advertising. Mobile accounted for 50.5% of all internet ad revenue in the US in 2016, compared with 35% and 25% in 2015 and 2014, respectively. Mobile ad revenue increased at a CAGR of 87% over compared with 6% growth in non-mobile revenue over the same period. Internet advertising revenue increased at a CAGR of 16% in the past 10 years, outpacing US current-dollar GDP growth of 3% over that period. Since 2010, internet advertising revenue has been characterised by a strong seasonal trend. With each annual calendar cycle, revenue peaks in the fourth quarter, followed by a dip in the first quarter before a recovery in the second quarter. The online advertising industry is primarily based on three types of pricing models: 1. Cost Per Impression (CPM): An advertiser pays when an ad is displayed to the user, and the cost is usually charged per 1,000 views. 2. Cost Per Click (CPC): Under this model, an advertiser pays when the user clicks on an ad. This is an form of performance-based advertising. 3. Cost Per Action (CPA): The advertiser pays only when a user-defined action occurs, such as an app install. EXHIBIT 3: ONLINE ADVERTISING PRICING MODELS SOURCE: COMPANY DATA

7 6 Performance-based advertising CPC and CPA broadly fall under the performance-based advertising umbrella. Within this, CPA embodies a more valueadded approach that is beneficial for all concerned parties. In 2016, performance-based advertising accounted for 64% of total US internet ad revenue, while CPM accounted for 35%. Performance-based pricing has been the leading pricing model since Performance-based marketing is a natural evolution from the CPM and CPC models used digitally. Performance-based marketing involves the CPA model, wherein marketers earn a margin only on tangible outcomes or results, such as a product sale, download or customer conversion. Advertisers and traffic partners are billed and paid as and when the actual measurable goal has been achieved. This reduces the marketing spend risk for both advertisers and marketer. Thus, advertisers would receive a greater return on investment (ROI) from the CPA model. EXHIBIT 4: US INTERNET ADVERTISING REVENUE 2016 (TOTAL VALUE: USD 72.5 BILLION) 36% 64% CPC/CPA CPM + Other SOURCE: COMPANY PRESENTATION; IAB/PWC INTERNET AD REVENUE REPORT, 2016

8 7 EXHIBIT 5: CPA BENEFITS IN VALUE CHAIN SOURCE: COMPANY PRESENTATION Adtech sector consolidation The adtech sector is consolidating, with acquisitions increasing by more than 10x since The outlook for further consolidation remains strong, as an increasing number of global adtech companies are seeking to build scale by acquiring targets with a growing client base and innovative IP. The following are some recent examples of consolidation in the performance advertising and mobile marketing sector: AppLovin s sale to Orient Hontai Capital for USD 1.4 billion in September AppLovin focuses on reaching new users for advertisers, delivering targeted content to over 1 billion mobile users per month with ROI focussed advertising campaigns. Smaato s sale for USD 148 million in June Smaato runs the world s largest independent mobile ad exchange. It is a free to use self-service platform & ad server that brings video and real-time advertising to over 90,000 mobile app developers and publishers. Dentsu Aegis s acquisition of Merkle for USD 1.5 billion in August Merkle is a global data-driven, technology-enabled performance marketing agency. Their capabilities span people-based marketing disciplines: customer strategy,

9 Number of acquisitions Vested Research 8 performance media, customer experience and personalization, customer relationship management, loyalty marketing, and enterprise technology services. Pepper Jam s sale for USD 985 million in April Pepper Jam is one of the largest affiliate networks in the world, with a pay-per-performance business model. Pepper Jam has offices in the UK, US and Canada. The company takes a cross channel approach to ensure their clients message is being delivered to any platform the target audience engages. EXHIBIT 6: ADTECH ACQUISITIONS BY YEAR '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 SOURCE: COMPANY PRESENTATION, Company Overview Tech Mpire Limited is an Australian digital performance-based marketing company that offers performance-based online and mobile marketing solutions. Based in Perth, Toronto and Croatia, it delivers CPA advertising solutions for major brands, helping them acquire new users wherever they are in the digital world. The company has substantial proprietary technology and a strong reputation as a performance marketing innovator. Since the launch of its North American office in July 2014, TMP has been recording significant revenue growth, constantly exceeding targets. Tech Mpire Limited acquired Croatian software developer Appenture in June 2016, benefitting from immediate and substantial technical expertise. The company has been scaling up on a global scale, supported by a strong balance sheet and investment in sales and

10 9 marketing. The growth strategy is being led by the new CEO, who has 10 years of Google adtech experience. TMP s recent product developments have provided a significant edge in the CPA marketplace through: Providing superior ROI on ad spend for the clients through real-time automation and optimisation Building long-term trust with sophisticated quality assurance tools and reporting Integrating with high-quality, high-volume sources of traffic to enable advertisers to quickly scale up their campaigns globally EXHIBIT 7: TMP ADVERTISERS AND PARTNERS MODEL Increase Ad Spending Acquire More Customers Advertisers Tech Mpire Partners Increase Return on Investment Increase Traffic Volume SOURCE: COMPANY DATA The company uses its worldwide network of online media (Partners) to support brands (Advertisers) to advertise to their audiences online. The partners are paid at a fixed price per conversion, which is known on the acceptance of a marketing campaign. Depending on the agreement, a partner gets a share in per action fee, which is paid by the advertiser, while TMP earns the remainder as an intermediary. In FY16, the company s client base increased 78% and active partner network 109%, enabling it to provide almost 18 million conversions to 341 clients. This was accompanied by 53% y-o-y growth in average spend per client. A substantial amount of TMP s revenue are derived from North America and although

11 10 receiving demand from Asia Pacific in the past, the company was not able to service that time zone. In response to the demand, the company has actively made it their priority to expand into the Asia Pacific region as part of their diversification strategy. According to Statista, revenue of the internet advertising market in the Asia-Pacific region is forecast to reach USD billion in EXHIBIT 8: TMP S REVENUE MODEL Through TMP, advertisers are able to engage targeted consumers via its global network of over 5 million websites, mobile apps and digital media. TMP's nxus platform tracks a customer's entire journey, from the first click on the ad......through to the achievement of the advertiser s goal (conversion), i.e., when a purchase is made or a mobile app is downloaded. The advertiser pays TMP only when a pre-defined conversion is achieved, reducing the risks typically associated with ad spend. SOURCE: COMPANY DATA The company s operating segments are Technology and Performance Marketing: The Technology segment develops and maintains the cloudbased nxus and TrafficGuard software platform, which provides real-time attribution tracking, analytics and data reporting for online advertising. The TMP network uses nxus to manage the entire life cycle of the performance network and to track billions of consumer data points every day.

12 11 The Performance Marketing segment oversees TMP s performance marketing operations. The company s marketing platform acts as an intermediary between its advertising clients and its permitted partners, which grow and deploy targeted online marketing campaigns to prospective customers. The company also engages in the strategic management of advertising campaigns and selective sourcing of partners to create comprehensive customer acquisition solutions for advertiser clients. The company delivers CPA advertising solutions to the world s biggest brands, helping them acquire new users in the digital world. The performance-based marketing model is beneficial for all involved parties, with TMP earning a margin only on tangible outcomes or results, such as a product sale, download or customer conversion. Advertisers and partners are billed and paid as and when the actual measurable goal has been achieved. This reduces the marketing spend risk for both advertisers and TMP. Multiple growth strategies TMP s software competitive advantages nxus. TrafficGuard. and big data intellectual property provide a platform for its growth strategies. TMP has three broad strategies to drive growth: Strategy 1 Investing in four tech pillars TMP announced its technology strategy in April 2017, which is based on four tech pillars. To accelerate the development of nxus to capitalise on market opportunities, TMP continues to invest in technology around the following key areas:

13 12 EXHIBIT 9: FOUR TECH PILLARS 1 Investing in Big Data analytics and automation to improve efficiency, quality and profitability for its advertiser campaigns 2 Accessing higher volume sources of supply, enabling better catering to global demand 3 Strengthening the mobile business by providing better audience data and easier engagement for mobile advertisers 4 Continued evolution of quality assurance measures to eliminate invalid traffic and improve ROI for partners and clients SOURCE: COMPANY DATA Strategy 2 Expanding into Asia-Pacific The Asia-Pacific region, which dominates the global app world, could drive the next phase of TMP s regional growth strategy. 33% of the world s app developers are from Asia, with the region also reporting the highest growth, according to Statista. Owing to its technological power and global reach, TMP is well positioned to tap into this potentially explosive growth opportunity. As part of its Asia-Pacific strategy, the company is focusing on export marketing, targeting app developers who are looking to acquire new customers beyond their home countries. The scalable technology of nxus would enable TMP to expand into the Asia-Pacific in an efficient, cost-effective manner while focusing on satellite offices with lean business development teams to secure clients throughout the region.

14 13 EXHIBIT 10: EXPANSION INTO ASIA-PACIFIC Almost a third of the world s app developers are from Asia (the region with the highest rate of growth). Mobile Internet Advertising is forecast to grow in Asia Pacific at a 22.2% CAGR in the next five years. 60% of mobile game spending for 2016 happened in the Asia Pacific region China accounted for over half of ios App Store s annual growth in SOURCE: COMPANY DATA Strategy 3 Target high-value clients Following an overhaul of its supply sources, and changes in the technology and management teams, TMP appears to be in a good position to seek a more diversified client base of leading global brands. By leveraging nxus and market intelligence insights (such as app store analytics), TMP will be targeting higher-value clients while focusing on diversifying revenue across verticals, regions, and seasons. Key milestones

15 14 Board and Management Lee Hunter, CEO Mr Hunter has helped grow some of the biggest technology companies in the world. Mr Hunter is a former senior Google executive, most recently serving as the Head of Marketing Strategy and Innovation for Google Asia-Pacific. Where he was responsible for incubating and launching innovative strategies for the company s key business priorities across the APAC region. He also served as the head of advertiser acquisition and growth marketing for Google UK and Ireland, where his advertiser acquisition strategies consistently helped the company exceed targets in Google s largest European market. Mr Hunter spent several years at YouTube, most recently as the global head of brand and creative, where he led the majority of the online video channel s biggest entertainment initiatives. These included the YouTube Music Awards and the YouTube Rewind campaigns. Prior to taking that role, Mr Hunter was head of consumer marketing across EMEA for YouTube. He has also held senior roles at Deutsche Bank and AMP Financial Services. Mr Hunter brings to Tech Mpire extensive experience in the global online advertising industry from working with leading adtech innovators in Sydney, London, and Silicon Valley. Renaud Besnard, Non-Executive Director Mr Besnard has been instrumental in the growth of some of the most prominent technology companies in the world, such as Uber, Google and Microsoft. As non-executive director of the Board of Tech Mpire, Mr Besnard s experience will help to guide the Company s expansion into APAC. Mr Besnard is currently the director of marketing for the Asia-Pacific region (excluding India) at Uber Technologies Inc. Here he is responsible for the development of Uber s marketing strategy and its execution across the region. Previous to his current role, Mr Besnard was a long-standing Google executive, having spent almost 10 years in senior positions in Europe and Asia.

16 15 Stephen Belben, Non-Executive Chairman Mr Belben has 17 years experience in both executive and nonexecutive director roles, at a number of public and private companies. This experience follows 9 years as a senior partner at Ernst and Young, specialising in corporate and assurance work in Western Australia. Mathew Ratty, Non-Executive Director Mr Ratty is an experienced investor focused on Australian and US equity and debt markets. He has extensive experience across corporate finance and strategy. He is the co-founder of MC Management Group Pty Ltd, a venture capital firm operating in domestic and international debt and equity markets. MC Management Group is a substantial shareholder of TMP. At MC Management, Mr Ratty also holds the role of Head of Investment and is responsible for negotiating deal structures and asset pricing for companies in the healthcare, financial and technology space. Prior to this, Mr Ratty was director and analyst at property development and equity company, Gladstone Bridge. He is also a non-executive director at listed medical technology company, Admedus Limited (ASX: AHZ). Luke Taylor, Chief Technology Officer As a founding member of Tech Mpire, Mr Taylor has been involved in all aspects of the Company s global operations. In his current role as Tech Mpire Chief Technology Officer, Mr Taylor leverages almost 20 years of experience in building and growing technology companies, to guide the evolution of Tech Mpire s nxus platform and overall technology strategy. Tim Allison, Chief Financial Officer Mr Allison is a Chartered Accountant and Associate Member of the Governance Institute of Australia. He brings over eight years of experience in both commerce and professional practice. Mr Allison has extensive experience in change management, corporate restructures and corporate governance, while acting as Finance Manager and Financial Controller for various ASXlisted entities.

17 16 Jeff Botnick, Managing Director of Mpire Network Mr Botnick has been the Managing Director of Mpire since February 2014, during which time he has been responsible for building, leading and directing the sales team, while expanding the supply network. Mr Botnick has over 12 years of experience in the digital marketing and e-commerce industry, with specific significant experience in performance based marketing. Mr Botnick has experience in managing teams in both start-up and mature businesses. Prior to joining Tech Mpire, Mr Botnick managed digital marketing operations of two of the largest performance based agencies in North America. Shareholding pattern Tech Mpire was listed on the Australian Stock Exchange after it raised USD 6 million on 7 July HSBC Custody is the largest shareholder in the company with a 11.75% stake, followed by MC Management Group 7.60% % (9.96%) and Zhenya Holdings 9.73%. (MC Management Group also holds 6.5m options with a 50c strike, therefore making it the number one shareholder if the strike is reached and the options are exercised.) EXHIBIT 11: TOP 10 SHAREHOLDERS SOURCE: COMPANY ANNUAL REPORT 2017

18 17 Investment View High-growth addressable market The company is well positioned to capture the opportunities resulting from growth in performance advertising and mobile marketing. Internet ad revenue in the US increased at a CAGR of 16% in the last 10 years. The global mobile advertising market is expected to reach USD 215 billion by 2021, representing 72% of the total online marketing sector. There is clear growth momentum towards mobile platforms. Furthermore, budget allocations for performance-based advertising are increasing, given their degree of effectiveness and attractive ROI. The size of the US performance advertising market was USD 47 billion in 2016, representing 65% of the total online marketing budget. EXHIBIT 12: US INTERNET ADVERTISING REVENUE (USD BILLION) $80 $60 $40 $20 $ Non- Mobile Mobile SOURCE: COMPANY PRESENTATION, IAB/PWC INTERNET AD REVENUE REPORT, 2016 Why will CPA continue to expand? TMP provides cost-per-action (CPA) advertising solutions, with nxus and TrafficGuard providing a competitive advantage in terms of quality, scale and automation. Advertisers find CPA pricing attractive, as payments are made only upon a campaign s success. In comparison to other pricing models, CPA provides with a low-risk, minimal-effort platform to advertisers.

19 18 Advertisers can enhance their ROI under the CPA pricing model, thus motivating them to increase their budgets over time. The primary challenge historically for companies like TMP has been the difficulty of aggregating sufficient CPA (supply), nxus very efficiently brings these sources together in scale. TMP has 3 primary sources of competitive advantage 1.nxus. 2.TrafficGuard. 3.Big Data. Competitive Advantage #1 - nxus nxus automates and accelerates cost-per-action (CPA) campaigns for advertisers, optimising the best sources of traffic. The majority of TMP s competitors act as media agencies and manually connect advertisers to the sources of CPA traffic using unsophisticated and opaque methods to build campaigns for advertisers. nxus on the other hand, is a sophisticated system and adds value through its efficient automated platform. nxus adds value through: Automated demand and supply mediation: It offers fast, intelligent campaign connection and activation, linking advertisers with the most effective traffic sources. Real-time optimisation: nxus offers automatic, real-time updates on campaigns and continuously improves performance against advertiser goals. It also prioritises the highest sources of ROI. Quality assurance: It proactively assesses traffic sources to remove invalid traffic or non-compliant campaign activity, retaining only trusted and genuine conversions. Big Data enabled tracking and transparency: nxus processes more than 6 billion data points each day in order to monitor

20 19 and report on campaigns, thus helping clients optimise and understand their spending. Creating supply to match global demand: The biggest challenge for TMP is ensuring the right supply of quality traffic to meet booming global demand. TMP has a competitive advantage, as nxus allows scaling up and optimising a wide variety of traffic sources, delivering more supply than other players in the CPA marketplace. The following factors give TMP an edge over other players: o Scaling up existing supply sources through automation and mediation, recommending the most suitable traffic source, and optimising the full potential of each source. o o Gaining connections to new high-volume supply partners via direct integration through APIs. Introducing new types of supply sources though TMP-owned media and integrating with monetization partners; for instance, embedding clients ads within apps by partnering with app developers. Competitive Advantage #2 - TrafficGuard In late 2016 the company released an innovative technology to block invalid conversions for their clients. The roll out of TrafficGuard appears to have been a success, it has identified and blocked over 2.5 million invalid conversions since inception. The technology is an automated anti-fraud solution that can detect and intercept invalid traffic in real time. TrafficGuard employs machine learning to detect and continuously learn from suspicious behaviour. TMP s technology offers an effective solution to online advertising fraud, which is expected to cost advertisers approximately USD 50 billion over the next decade. Competitive Advantage #3 - Big Data nxus operates at scale, with a database of 2 trillion data points (such as who clicked on an add, where they live, what device they used etc.) nxus currently processes more than 6 billion data points each day to monitor and report on campaigns and algorithmically recommends the most relevant traffic source for an advertiser s campaign. Big data is a unique and growing source of intellectual property.

21 20 Global client base TMP s clients represent some of the biggest brands in the world, ranging from IT giants to food majors. TMP has delivered over 23 million conversions to more than 300 advertisers in FY17, which was an increase of 58% from the volume recorded in the previous corresponding period, as per the company s June 2017 presentation. Strong revenue growth and positive outlook In-line with the growing addressable market, TMP s revenue is highly leveraged to exploit this growth. TMP s FY17 revenue grew 15% y-o-y to AUD 37 million. We expect revenue to increase at a CAGR of 20% over FY EXHIBIT 14: STRONG REVENUE GROWTH (AUD MILLION) FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E SOURCE: COMPANY DATA, VESTED ESTIMATES TMP is expected to sustain its uptrend in sales owing to the following factors: Anticipated growth in CPA advertising budgets globally and ever-increasing penetration of mobile marketing Rollout of scalable technologies, leading to competitive advantages and increased margins Expansion into other markets, such as the Asia-Pacific Focus on complimenting competitive advantages with strategic business development efforts to target high-value brands Diversification across verticals and regions

22 21 Turning profitable aided by a strong balance sheet TMP had a strong cash position of AUD 8.2 million at the end of FY17, and is well placed to fulfil any working capital needs. Profit is expected to be bolstered significantly by technology efficiencies, enabling better margins and improved sales in the long run. R&D and technology costs are anticipated to remain at current levels. In addition, these costs have been expensed rather than being capitalised. The company is well positioned to prioritise the sources of traffic that offer better margins. Moreover, a relatively fixed cost base will help in achieving a considerable increase in sales without a significant rise in employees, thereby supporting margins. TMP has recorded its first annual profit since re-listing two years ago at AUD 417k. We expect net profit to increase at a CAGR of 108% over FY The company is targeting quality traffic supply over volumes along with expansion in the Asia-Pacific region. EXHIBIT 15: TURNING PROFITABLE FY17 ONWARDS (AUD MILLION) FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E SOURCE: COMPANY DATA, VESTED ESTIMATES Merger & Acquisition Potential TMP could add shareholder value by acquiring new sources of supply rather than paying for supply sources for each action. TMP has the advantage of direct relationships with multiple supply sources and so it able to negotiate purchases directly, without an auction process theoretically. Acquiring and directly integrating a supply source should increase TMP s gross margin

23 22 and competitive advantage (because quality supply sources will become proprietary). Valuation We arrive at a target price of AUD 0.81 using the DCF approach, assuming a WACC of 14% and a beta of 0.5. Our target price implies a potential upside of 189% from the current spot price. We assumed a WACC of 14%, calculation of terminal value based on the Gordon growth model using a terminal growth rate of 3.0%. During our research, we were unable to identify and compare similar companies to Tech Mpire on a trading multiple basis due to lack of comparable peers and consensus coverage. Hence, we have not used relative valuation to determine the target price. EXHIBIT 16: FCFF SUMMARY SOURCE: VESTED ESTIMATES EXHIBIT 17: SUMMARY OF DCF VALUATION SOURCE: VESTED ESTIMATES EXHIBIT 18: TARGET PRICE SENSITIVITY TO WACC AND TERMINAL GROWTH RATE SOURCE: VESTED ESTIMATES

24 23 Price performance TMP has returned 75% YTD but has underperformed the S&P/ASX 300 index over the past 12 months. The YTD average volume of the stock stands at 138,903 shares, with average daily liquidity of AUD 40,498. Although TMP s liquidity levels have remained low, we believe the situation would improve once the market takes notice of the company turning profitable and expected future growth. EXHIBIT 19: LIQUIDITY TO IMPROVE AS COMPANY TURNS PROFITABLE ,000 3,500 3,000 2,500 2,000 1,500 1, Volume ('000, RHS) Price (AUD) SOURCE: COMPANY DATA, VESTED ESTIMATES Key Investment Risks Potential Upside Better-than-expected growth in partners: Any increase in the number of partners can have a multiplier effect on TMP s ability to attract clients. Given a rapidly growing market, TMP may be able to achieve better-than-expected results. Advertiser growth: TMP operates in a fast-growing market. The company could expand rapidly if management increases the number of high-value clients that engage TMP s advertising services. Tier 1 clients have significant financial resources, any Tier 1 client additions may result in explosive revenue growth. The company has a high advertiser

25 24 retention rate, successful marketing campaigns should see advertisers allocate major portions of their advertising budgets to the company. Rapid expansion in Asia-Pacific: TMP s platform can be used on a global scale. However, it derives the majority of its revenue from the North American market. Growth in emerging markets (such as APAC countries) will allow TMP to increase its geographic footprint, as advertisers in such markets may be drawn towards performance marketing, given the inherent low capital requirements and a high ROI. Development of TrafficGuard: In late 2016 the company released an innovative technology to block invalid conversions for their clients. The roll out of TrafficGuard appears to have been a success, it has identified and blocked over 2.5 million invalid conversions since inception. The technology is an automated anti-fraud solution that can detect and intercept invalid traffic in real time. TrafficGuard employs machine learning to detect and continuously learn from suspicious behaviour. TMP s technology offers an effective solution to online advertising fraud, which is expected to cost advertisers approximately US$50 billion over the next decade. Acquisitions: The TMP platform allows the company to acquire and integrate complimentary businesses, acquisitions can create synergies for the company and help drive revenue growth. nxus: TMP can sell its nxus and TrafficGuard software as a service (SaaS) product, thereby adding a large untapped revenue stream. Potential Downside Technology: TMP operates in a market that is prone to disruptions. Any failure to adapt to rapid technological changes could render its platform obsolete. The company may also face platform-specific challenges (such as security and downtime issues). Competition: Competition from other performance marketing companies could negatively affect TMP s market share. However, TMP s proprietary nxus platform should mitigate the threat of some of these issues.

26 25 Key personnel: TMP will need to attract and retain innovative and educated individuals to drive the company s expansion in Asia, a loss of CEO or CTO could lead to the company failing to execute strategic plans, resulting in lower than expected growth in market share and revenues.

27 26 Company Financials EXHIBIT 20: SUMMARY OF FINANCIAL STATEMENTS In AUD 000 (except per share) FY2015 FY 2016 FY 2017 FY 2018E FY 2019E FY 2020E FY 2021E Income Statement Revenue 11,850 32,123 37,025 43,505 51,553 61,863 75,783 EBITDA (10,093) (3,232) 915 2,524 4,531 7,333 11,306 D&A (26) (37) (80) (67) (82) (101) (123) EBIT (10,119) (3,269) 835 2,457 4,448 7,232 11,183 Interest Expense (154) (119) (56) Income Before Income Taxes (10,273) (3,389) 780 2,457 4,448 7,232 11,183 Income Tax (58) (258) (363) (737) (1,335) (2,169) (3,355) Net Income (10,331) (3,647) 417 1,720 3,114 5,062 7,828 EPS (1.21) (0.06) DPS Balance Sheet Cash and Equivalents 6,234 5,601 8,202 8,484 11,224 15,780 22,905 Total Current Assets 10,451 10,130 11,871 12,795 16,333 21,910 30,414 Property Plant & Equipment - Net Total Non-Current Assets Total Assets 10,556 10,347 12,048 12,975 16,515 22,092 30,598 Total Current Liabilities 3,368 2,236 3,745 2,928 3,331 3,822 4,476 Total Debt 653-1, Total Liabilities 3,431 2,311 3,844 3,051 3,477 3,992 4,670 Total Shareholders Equity 7,124 8,036 8,204 9,924 13,038 18,100 25,928 Cash Flow CFO (5,904) 488 1,913 1,448 2,825 4,656 7,250 Capital Expenditures (40) (114) (86) (70) (85) (100) (125) CFI 1,278 (126) (150) (70) (85) (100) (125) Dividends Paid CFF 10,672 (1,028) 1,124 (1,097) Net Change In Cash 6,046 (666) 2, ,740 4,556 7,125 Important Disclosure: Vested Equities Pty Ltd and/or its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This special report may not be distributed outside of Australia and has been prepared solely for your information and may not be reproduced or redistributed.

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