When it comes to advertising, traditional tactics (e.g. magazine, radio and billboards have steadily become less relevant, replaced by modern technologies designed for more strategic digital media based marketing. Within this race – digital media content creation has taken pole position. Ultimately, first-party, user-driven content is king nowadays. After all, there is nothing better for a brand than when product content, albeit a video, image or article, “goes viral” highlighting one of their products.

That’s where advertising tech (adtech) and marketing tech (martech) are the horses pulling the cart. For the past few years, Facebook, Google and Amazon dominated this $100B US market.

Not surprisingly, market data supports the already large market getting even bigger. In combination with the University of Bristol, advisory firms BDO and WARC show in a report that the global marketing technology industry could be valued up to $121.5 billion last year, noting that martech budgets in North America increased 25% from 2018 to 2019.

Artificial Intelligence has levelled the playing field, and new AI driven enterprise level SaaS companies have begun capturing a significant amount of market share away from the majors.

“Creativity” ranked as the top marketing skill required by brands, with the most popular tools being related to content, social media and email. That certainly speaks to the new age of marketing. These results dovetail with a video by #Hashoff, a unit of tech accelerator DGTL Holdings (TSX-V: DGTL), showing content now accounts for over half of the $100 billion U.S. digital media sector.

Embracing Innovation

Martech spending is surging as brands seek to gain a competitive edge in the digital climate of a gig economy.

“Even prior to the COVID-19 econony, traditional media marketing like print, television and radio has been on a significant decline for the past decade, with digital media and first user content now leading the way” explained John Belfontaine, founder of DGTL, in a phone call with Baystreet.ca discussing the market. “Brands are steering billions into the digital media space, and software solutions for social media content, connected TV and audio and gaming are leading the charge. The future of marketing is unobtrusively reaching an individual with a high probability of gaining a loyal customer through savvy product placement, 1:1 social media content recommendations, and in-depth real time analytics to value the ROI on every penny invested, which is only available with adtech and digital media.”

Companies and brands are beginning to realize that consumers don’t like ads, especially bad ones that interrupt what they’re doing. Re-marketing ads make consumers feel like they’re being stalked. Pop-up ads are annoying. Auto-play videos have surprised or embarrassed most of us in a public setting more than once.

Still, most brands rely upon legacy transactional ad buying through providers like Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN) and Facebook (NASDAQ: FB), which deliver relatively low ROI.

This explains why more mature publicly traded adtech companies like AcuityAds (TSX: AT), Mediagrif Technologies, IZEA Worldwide (NASDAQ: IZEA) and DGTL’s #Hashoff are gaining traction by incorporating content creators and cutting edge technologies like AI and ML into their ad campaigns. AcuityAds utilizes AI and “decision science technology” to help its customers reach targeted audiences, including those in the vaunted gaming industry. IZEA is influencer-focused as the creator and operator of an online marketplace allowing influencers, including pro athletes, to offer their services to brands.

AcuityAds Holdings (TSX:AT) and Mediagrif International Technologies (TSX:MDF). For the quarter ending June 30, 2020, the two companies generated C$19.6 million and C$20.5 million in revenue, respectively, but remain in negative cashflow. These long-standing players in the advertising technology sector, whereas DGTL is beginning its journey of growth through M&A and asset incubation and plans to maintain sustainable margins and drive cashflow positive operations.

#Hashoff: The Name Brands Know and Investors Will

DGTL is uniquely focused on acquiring, incubating and accelerating growth in innovative companies disrupting the martech/adtech markets. DGTL recently made its first acquisition, #Hashoff, bringing on board a brand that has made spectacular growth with minimal staff in a short period of time. Moreover, DGTL management negotiated an earn-out deal that means #Hashoff owners benefit the most by continued growth. They are now full speed ahead with a new Digital Media Sales executive operating from offices in the New York City financial district.

#Hashoff is a Software-as-a-Service (SaaS) turnkey AI/ML solution that allows its customers to source, manage, distribute and measure content marketing. Through #Hashoff, brands can activate content in all media formats, including social media posts, paid content creatives, digital OTT (i.e. Roku (NASDAQ: ROKU)), custom videos, blog posts and more all through a single cloud-based platform.

#Hashoff does all the heavy lifting for brands, whether it be for a nationwide campaign or dialing in to a specific demographic in a particular region through a real-time connection with more than 140 million freelance content creators.

The company counts household brands as clients, including beer behemoth ABInBev (NYSE: BUD), Pizza Hut (NYSE: YUM), Dunkin’ Brands (NYSE: DNKN), TJ Maxx (NYSE: TJX), Comcast Universal (NASDAQ: CMCSA), CBS, Lending Tree (NASDAQ: TREE), FanDuel, The Container Store (NYSE: TCS) and more. That’s a client roster not seen very often in a company with a C$5.4 million market capitalization, particularly when considering that AcuityAds and IZEA have valuations of C$121 million and $51.0 million, respectively, while operating at a net loss and yet still experiencing market cap growth in the past 60 days, as the new COVID economy inspiring major growth of digital media consumption and ecommerce shopping.

When Anheiser-Busch engaged #Hashoff to launch a new brand to millennial women, it realized 3x ad recall and a 5x improvement in intent to purchase versus traditional marketing methods. As Belfontaine expounded during the call, “That is only one brand of ABInBev; they have over 100 SKUs. Much like with our other clients, there is exponential room for growth within their ecosystems in addition to winning new clients.”

It’s this type of result that underscores 90% of #Hashoff clients renewing, which has led to a growing customer base and improved margins to around 60%. This is just the beginning, as the DGTL and #Hashoff executives boasts over $1B USD in career digital media sales, and hail from top firms like Hearst, Quantcast, Yahoo!, AOL-Time Warner, Rockfuel and the New York Times.

Hashoff A Savvy Acquisition

Amazingly, #Hashoff achieved this growth in only a few years with founder Joel Wright essentially making up the sales force. Wright has a history of success in the space, running the North American media group of Travelocity, which was acquired by Expedia (NASDAQ: EXPE) in 2013 for $280 million. He also was integral in building the digital operations for Hollywood talent agency Paradigm Consulted, which worked with Yahoo! and social media firm Ning, which was acquired by GLAM Media for $150 million in 2011.

DGTL reported their last quarterly financials in April 2020 with just over $1 million in cash. They closed a private placement for an additional $1.32 million (at $.35 cents a common share) shortly thereafter. DGTL Holdings currently has 25.8 million common shares outstanding (approximately 60% are subject to a three-year escrow release schedule) giving DGTL Holding an enterprise value floating around just $5 million.

According to an independent Valuation Report, Hashoff’s AI-SaaS technology platform has been valued at between $6.6 million to $7.1 million. Hashoff’s 2019 financials showed approximately $2.5 million in revenue for the previous 9 months of 2019 with about a 60% gross profit margin (all prior to entering the DGTL incubator program). The same month, DGTL reported their financials of just over $1 million in cash on hand and, shortly thereafter, they closed a private placement for an additional $1,350,000 at $.35 cents a share.

Under the terms of the acquisition agreement, DGTL (then called Conscience Capital before a recent name change this month), paid US$500,000 to former #Hashoff shareholders on a pro-rata basis in proportion to their holdings. The company also committed to make future payments of up to US$1.5 million upon the company achieving certain revenue targets. These milestones require a significant revenue growth curve, and requires Hashoff to grow to $8,000,000 in revenue on or before June 30 2023 in order to receive 100% of their cash payments.

DGTL, which has about 25 million common shares outstanding, also issued approximately 8.3 million preferred shares to #Hashoff shareholders at a deemed value of $.47 a share. These preferred shares are non-voting, convertible into shares on a one-to-one basis and entitle the holder to an annual cumulative fixed dividend of 4%, and subject to a three year escrow.

DGTL management made it clear that the strategy was to leverage the team’s century+ experience in marketing to quickly grow the management team to accelerate growth. That has already happened, with appointment of a new Digital Media Sales and Account Management department, including Joel Wright staying on as interim CEO of #Hashoff, Strategic Advisor at DGTL and key account manager for core customer AB-InBev.

Wright and Thomas join proven senior executive team led by CEO Mike Racic. Racic leads with +20 years in digital media and adtech management, with notable appointments as the former SVP, Director of Partnerships and Category Strategy at RocketFuel and EVP of head of global planning and strategy roles with UM and J3, etc.

During the call, Belfontaine conveyed that DGTL intends to remain a very narrow scope similar to the acquisition of #Hashoff in identifying additional portfolio companies. He is looking for fully commercialized enterprise level SaaS outfits and AI companies with proven revenue, sustainable margins and entering into breakout rapid growth stage. This type of acquisition can easily fold into the business model without adding greatly to overhead while capitalizing on the skillset of the existing DGTL team.

The plan is to remain responsible with keeping a tight share structure and to negotiate earn-out deals where the acquired company is incentivized to grow sales and profits, ultimately leading to DGTL employing a dividend model to reward its shareholders.

DGTL also recently secured a US$2.0 million low interest credit facility with Pacific Western Bank (PWB). Anyone who understands business loans for upstarts, particularly in this risk-averse COVID-19 environment, realizes that PWB must have seen some solid contracts on the books for #Hashoff to secure the loan at an interest rate of just 0.83% per month.

DGTL began trading on August 4th 2020, with the momentum of a solid management team, a strong financial position, and a plan to build a portfolio model with multiple fully commercialized SaaS companies during a boom in the digital media and marketing sector. If a traditional bank sees what’s under the hood and will lend on great terms against the fundamentals; it is only a matter of time before retail investors get wind of the good things happening at DGTL and #Hashoff.

Traders have picked up on AT, IZEA and EQ Inc. (TSX-V: EQ), as evidenced by their sharp share price appreciations. It seems only the newness of DGTL as a public entity is keeping it off the radar for the moment.

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