Cloud Technologies is a Warsaw-based data tech company operating on the Internet advertising market. The Company uses its proprietary technology called a Data Management Platform (DMP) for collecting and processing data about Internet users employing big data instruments, machine learning or AI. Cloud Technologies boasts of the unique on the WSE exposure to the fastest growing segment of the global ad industry (online advertising), in particular it operates in its biggest segment using the programmatic model which provides over 72% of global display advertising. According to different sources1, the programmatic segment value should grow with 21%-31.9% CAGR in 2022-28. Data sold by the Company plays the crucial role in creating profiles of Internet users and targeting of advertising in the programmatic model, that is why we believe this market’s growth will have directly positive impact on the Company’s business.

Since Cloud Technologies’ business model change (2019-21), the Company recorded dynamic growths of financial results (in 2021 and 2022 adj EBITDA grew 196% and 31% yoy, respectively). Given the optimistic outlook for the industry we assume a further strong improvement of the Company’s total revenues in 2023/ 2024/ 2025 by 28%/18%/12% yoy translating into an increase of adj EBITDA by 34%/23%/16% yoy.

According to the Company’s new strategy, the main goal for 2023-25 is a further business growth to be realized by the expansion of distribution networks, quality and depth improvement, and search for new applications for the data collected. To achieve this, Cloud Technologies intends, among other things, to spend up to PLN 60 million on acquisitions. Within the framework of the new strategy the Company also plans to conduct a buyback for the needs of the incentive program (up to PLN 30 million) and to earmark 20% of its adj EBITDA for a dividend payout.

Our 12M EFV for Cloud Technologies constituting a 50%–50% mix of the DCF FCFF method and peerrelative valuation, stands at PLN 88.0 per share. Since February the Company’s market share price has almost tripled and now is close to our assessment of the fair value, therefore, we initiate the Company’s coverage with LT fundamental Hold recommendation and ST market-relative Neutral rating.

We see some downside risks to our forecasts and among the most serious ones we include the risk related to the privacy laws, risk of the economic slowdown coupled with rising costs of data acquisition. There are upside risks as well, among which we list the risk of a faster than expected growth pace of the revenues from data sales and lower than we assumed cost of data acquisition.

Catalysts

1. The prevailing trend to transfer marketing budgets to Internet from traditional advertising such as the press, radio, TV, outdoors.

2. Dynamic growth of the programmatic segment (21%-31.9% CAGR expected in 2022-28) being the main model in the Internet advertising industry.

3. More and more frequent implementation of AI for more precise users profiling with the use of AI algorithms. New AI-based instruments may inspire new applications for the data offered by the Company – structured data may be employed in learning how to use the AI algorithm-based instruments.

4. Active dividend policy.

5. High level of cash generation: in 2021 and 2022 OCFs accounted for 94% and 108% of adj EBITDA, respectively.

6. Dynamic growth of financial results in 2021-22 coupled with our optimistic forecasts for 2023E-25E.

7. Faster than expected growth pace of the data sales segment’s revenues.8. Positive impact of potential acquisitions.

Risk factors

1. Economic slowdown risk. The advertising market where Cloud Technologies operates is sensitive to the macroeconomic environment changes in the most important for the Company geographical regions (mainly EU and US). The economic slowdown, capex lowering, tax rises or interest rates hikes may exert especially adverse impact on this market.

2. Competition risk. Cloud Technologies provides services for entities operating in the Internet advertising industry that falls under the influence of global tycoons like Google, Apple, Facebook, Amazon or Microsoft which to date have not undertaken activities related to data processing and analysis of Internet users’ behavior for their further resale, thus they are not the Company’s competitors. However, should they enter this market, this would tremendously increase the competition level for Cloud Technologies given their resources, ranges, and capital strength.

3. Privacy regulations risk. The Company’s operations are connected to the collection, analysis, and processing of data about Internet users’ behaviors which in some jurisdictions may be regarded as personal data. Due to unfavorable changes in the appropriate law the Company may face difficulties or even lose the possibility to conduct business.

4. IT systems malfunction risk. The Company’s business activities are based on IT systems (proprietary Data Management Platform and servers leased from external suppliers). Thus, there is the risk related to IT systems malfunctions, disturbances, damages or stoppages which may hamper the Company’s efforts to fulfill agreements with clients leading to their discontent.

5. Key data source loss risk.

6. Key data distributor loss risk.

7. Internet advertising business model change risk. The Company is sensitive to the risk of consumers’ preferences change; consumers may prefer paid subscriptions requiring no consent for data processing and having advertisements removed which may result in falling volumes of the data on Internet users and more difficult data acquisition, albeit at the moment the consumers do not tend to prefer pay services. The Company has to be able to adjust its business model (including technology) to fast and dynamic changes of the Internet advertising market in a fast and effective way. There is the risk that some capitally stronger entities may be able to act faster and start offering technologically more advanced or more cost-effective services. This risk materialized in the years 2018-19 when the Company had to change its business model and its results temporarily deteriorated.

8.Currency risk. Cloud Technologies generates the majority of revenues in foreign currencies, especially in US$, whereas the Company’s costs are incurred mainly in PLN (some in US$). A weak/strong PLN in relation to US$ is favorable/unfavorable for the Company’s financial results. The Company does not use hedging against the currency risk.

9. Risk regarding the shareholder structure and control over the Company. The main shareholders own over 57% of the votes at the Company’s AGM. Their interests and actions may sometimes vary from the interests of the minority shareholders.

10. Slower than expected growth pace of the data sales segment’s revenues.

11. Negative impact of potential acquisitions. 12. Low liquidity on the WSE. Average daily turnover reaching c. PLN 100 000

Competitive advantages

1. Technology. Cloud Technologies owns the proprietary Data Management Platform for data integration and management. Instruments from big data field, machine learning and AI are used for data processing. The DMP has been under development for over 10 years which constitutes the competitive advantage over newcomers to the market.

2. Market experience. The Company has been dealing with the acquisition, processing, and distribution of data about Internet users for over 10 years and managed to develop a vast network of business contacts with both, the suppliers and clients.

3. Volume and data quality. Cloud Technologies processes c. 100 billion profiles of PC users and mobile devices users which makes the Company one of the biggest data warehouses in the world. Data comes from more than 200 countries. The Data Management Platform analyzes c. 5 billion activities per day