Dotdigital at the mercy of digital marketing budgets

Aim-traded marketing automation group Dotdigital (DOTD) is hoping customers realise that artificial intelligence (AI) can help them build more effective campaigns. According to its interim report, the company spent the first half of 2024 enhancing its “AI capabilities, personalisation and omni-channel functionality”.

Its marketing intelligence engine, known as WinstonAI, now offers grammar checking and rewriting services. Meanwhile, the group also added a raft of new personalisation options for multimedia messaging (MMS) campaigns. In plain English, these enhancements are all designed to tailor digital advertising to consumers, thereby increasing the chances of selling them a product or service.

Of course, this was much easier to do during the pandemic, when many bricks-and-mortar retailers were closed and there was little else to do but scroll the internet. Now that audiences are less captive, campaigns must be all the more enticing. 

In the first half of FY2024, Dotdigital acquired personalisation software provider Fresh Relevance to “accelerate” its customer experience and data platform (CXDP) proposition. The purchase “added highly complementary [...] technology to our offering, delivering early new business and cross selling success,” said chief executive Milan Patel in a statement.

The group closed the period with £37mn in cash on the balance sheet, down from nearly £50mn last year. However, the total gross margin of 79 per cent was more or less flat. According to management, there has been “a brief period of normalisation of working capital balances” following the Fresh Relevance buyout – but the group still retains sufficient cash for further acquisitions. 

Ultimately, growth depends on the continued expansion of digital marketing budgets, which is not guaranteed in the current macroeconomic environment. With the shares trading at 22 times estimated earnings for the full year, we’re content to wait on the sidelines a bit longer. Hold.

Last IC view: Hold, 86p, 7 November 2023