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Alfi: An Early Bet on the Future of Advertising

  • Alfi (ALF) is set to transform digital out-of-home (DOOH) advertising, a space that currently looks a lot like it did fifteen years ago.
  • The company seeks to leverage major economic trends, including ridesharing, artificial intelligence, targeted ads and privacy priorities, to create a new paradigm for outdoor advertising.
  • Alfi is early in terms of its sales ramp, but it is well-financed and has exciting partnerships and intellectual property.
  • This micro-cap stock, though still at the early stage of its commercial development, has the potential for its valuation to expand significantly in the near to medium term.

Unless you’re active on Reddit’s stock market forums or closely follow emerging tech companies, ALF might be the year’s hottest IPO you’ve never heard of. A public company as of May 4th, Alfi went from idea to IPO in about five years, all without seeing a dollar in revenue. In a wild ride, the digital advertising company soared from an initial market cap of $32 million to a peak of over $200 million in late June, a 500% increase in less than two months. As of August 25th, the stock is priced at just under $9 and has a market cap of roughly $150 million.

In part, the company’s price volatility is a natural consequence of its tiny market cap, social media buzz, and the financially frenetic world of tech entrepreneurship. However, at a more fundamental level, the price has moved so much because the market just doesn’t know what this little company will do. It has generated limitedf revenue, yet it could very well be a mega cap company in five years. What will drive Alfi’s success or failure is its ability to bring outdoor digital advertising, an industry that has remained relatively stagnant for the last twenty years, into the Information Age.  

Targeted but Anonymous                                                                                                                     

If it aims to go head-to-head against the powerful tech behemoths that currently dominate digital advertising, Alfi needs an edge. Advertising has transformed tremendously in the Digital Age, becoming more efficient, targeted, and of course, invasive. However, digital out-of-home advertising, or DOOH, has actually changed little. The industry is defined by stationary tablets and screens, like the ones you’ve seen in airports, bus-stops, and of course Times Square. They get a company’s message out but provide little to no performance feedback or targeting functionality to make ads more effective.

In other words, digital advertising is anonymous but undeveloped in the outdoor space, and very intrusive everywhere else. Alfi states that the company solves the fundamental problem of advertising by “bringing the right content to the right person at the right time in a respectful and ethical manner”. The emphasis is mine, but it illustrates how the company plans to differentiate itself from current advertising giants like Google and Facebook. 

Like its mega-cap competitors, Alfi’s ads are highly targeted, mostly informed by AI-processed imagery and user behavior on its tablet. Alfi’s software can make key demographic determinations about the user such as age, gender, and clothing style, as well as the location of the device. Additionally, its cameras track users’ facial expressions and eye movement as they navigate the tablet, determining which ads he or she is most likely to respond to, then measuring that response to inform future selections for similar demographics. Importantly, no personally identifiable data is ever stored, uploaded, or used to track the user.

Per Alfi’s quarterly statements [bracketed additions are my own]:

“Alfi expects to have three main revenue streams;

  • rideshares via the Alfi Network [such as in airports, public transportation, and Uber/Lyft vehicles],
  • SaaS contracts with operating companies who maintain their own network and lease the Alfi platform,
  • and annual data subscriptions of Alfi’s impressions gathered from the platform. [essentially selling Alfi’s marketing insights on a subscription basis.]

While the rideshare program is what moved the stock most since the IPO, the most scalable and likely highest growth offering is the second one: leasing out Alfi’s software to content providers and advertisers in all spaces, from webpages to applications on users’ own devices. Alfi offers an intelligent way to target relevant users with products they want. It’s arguably the first company with a viable way to do this while ensuring the user’s complete anonymity. Alfi is fully compliant with virtually all data privacy regulators, including the notoriously fickle European GDPR.

Rideshare Rollout, New Partnerships

Alfi’s proprietary AI and innovative approach to targeted advertising aren’t the only factors to drive a bullish thesis. The company is actively developing powerful partnerships with both drivers and complementary firms, ensuring that it hits the ground running when revenue starts coming in this year.     

One of the biggest price movers since the IPO has been Alfi’s partnership with Uber and Lyft drivers in 14 select cities, with over 30,000 drivers already signed up. Drivers will place Alfi’s tablets in their cars, and receive a percentage of ad revenue as riders engage with the platform. 

Alfi’s latest partnership is with Lemma, a leader in programmatic advertising. Lemma will ally its robust advertising exchange with Alfi’s ad platforms, promoting each other’s services and capitalizing on obvious intellectual and operational synergies as they each develop their business.

Financials: Nothing to See Here (Yet)

Alfi is still in the early ramp to revenue so it  doesn’t have a lot of financials to show with the exception of a solid balance sheet… The team has invested heavily in research and development, honing their algorithms to provide key marketing data while maintaining user anonymity. It has done this through fund-raising, first by issuing debt and then by selling equity after its IPO, which it also used to pay off its debts.

As of now, the firm appears focused on avoiding the runway problems many young tech companies face. It has a healthy $20 million in cash against virtually no debt and total quarterly expenses under $5 million. This strong cash position will cushion them a bit further before advertising revenue starts coming in, which should happen as early as the current quarter.

Whereas more established companies have historical performance to help predict future profit margins, revenue, and marginal costs, there is little such information to go on for Alfi. This is the biggest reason the company stays in “micro-cap” territory, despite a number of exciting developments this year. For now, investors have to value Alfi based on its technology, strategy, and projected performance. These form a compelling narrative, but the big money tends to move on hard numbers, not a great story. Companies like these are where retail investors can bag the next media giant before the institutional sharks start circling it.

Alfi: Betting on a Young, Fast Horse

Alfi is an unusual company. While most firms start small, make some money and then think bigger, Alfi has built a dynamic, well-connected and high-technology firm before even bringing their product to market. By going public at such an early, low-valuation stage in its development, Alfi offers the average investor a rare opportunity to get in on the ground floor of what could one day be a huge firm. Data-driven DOOH advertising is still in its nascence; Alfi seeks to lead the industry with innovative targeting and superior privacy protection, driven by patented intellectual property. The DOOH advertising space is currently valued at roughly $8 billion, and is expected to grow at a CAGR of more than 10% through 2027. If Alfi can become a leader in this industry, which its early moves show both the potential and intention to do, its share price could increase 10x in the medium term. Buying Alfi today is like betting on a horse that still hasn’t had its first race, but is running laps around the competition in time trials. When it comes to such a prospect, a small capital allocation is a responsible move that could pay huge returns in the years to come.

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