Team Internet’s ad business keeps growing

In September, web services group CentralNic rebranded to Team Internet Group (TIG) in a bid to find a name that more accurately reflected its identity. In a statement, the company said its transition into a “highly profitable digital marketing technology platform business” was catalysed by its acquisition of Team Internet AG in 2019. 

Though it has now established a foothold in the adtech world, CentralNic started life as a domain name registrar – meaning it handled the reservation of web domain names. This part of the business still exists in the form of Team Internet’s online presence division, which achieved $180mn (£141mn) in gross revenue last year. That’s over 17 per cent more than FY2022 – evidence that this is more than a legacy business.

But, as the name change indicates, it’s the online marketing arm that has proven to be the group’s real star performer. Sales in this segment totalled $657mn in the 12 months to 31 December – up from just under $575mn the previous year. However, management did acknowledge that trading conditions had been less favourable than in the recent past.

This is to be expected, given that advertising spend usually falls during times of macroeconomic uncertainty. Perhaps more consequential for investors is the company’s high client concentration. According to its results, one customer accounted for a total of almost $567mn in revenue across the two segments. This entity is “an aggregator who does not procure the services for its own use but provides access to an estimated three to four million end customers,” Team Internet said. 

The group’s continued success is, evidently, reliant upon continued spending by this single customer. While this sounds precarious, Team Internet is feeling positive about the future: by the end of last year it had bought back £28.4mn shares and paid its inaugural dividend. Leverage consequently increased to 0.96x from 0.84x at the end of FY2022. 

Though management hasn’t issued any specific guidance for the current financial year, it did confirm that it “is confident in its ability to meet current market expectations”. FactSet broker consensus puts Team Internet’s forward price to earnings multiple at only seven times for the full financial year, perhaps an indication that the market is still ignoring its inherent value. We retain our buy rating. 

Last IC view: Buy, 131p, 14 August 2023