Stock Analysis & Ideas

Why is System1 the Hottest Stock This Week?

This week, we are putting the spotlight on the omnichannel customer acquisition platform System1, Inc. (SST). Its Responsive Acquisition Marketing Platform (RAMP) identifies potential customers, qualifies their intent to purchase, and then monetizes these customers. On a daily basis, the platform processes more than 15 million advertising campaign optimizations and ingests five billion rows of data across 50 major advertising verticals.

The stock started trading on the NYSE on January 28 as a result of a combination between Trebia Acquisition Corp, S1 Holdco, and Protected.net.

Why Are We Highlighting System1?

A combination of a near 50% jump in the top-line, a string of acquisitions, rising trading volumes, heightened investor sentiment, a promising 2022 outlook, and a nearly 36% short interest should pique the interest of our savvy readers in the stock.

Since January, the company has acquired RoadWarrior and CouponFollow. Roadwarrior is a subscription app with a focus on route planning, catering to the gig economy. CouponFollow is one of the major venues for online buyers. Moreover, Sytem1 was also named 2021 Supply Partner of the Year, Americas by Microsoft Advertising.

System1 has a network of more than 40 owned or operated websites that provide it with qualifying customer purchase intent and first-party intent data. The network includes search engines such as info.com and startpage.com and digital media such as HowStuffWorks, MapQuest, and Wallet Genius. Average visits per month for the network aggregate to about 185 million.

System1 reported fourth-quarter fiscal 2021 numbers earlier this month. Revenue jumped 48% year-over-year to $239 million and net income surged over 4x to $31 million during this period. The company remains focused on growing its advertising and subscription businesses and positioning itself as a privacy-centric digital marketer.

Furthermore, as the advertising market expands, System1 endeavors to increase the number of its advertising partners, grow its direct-to-advertise business, make strategic acquisitions, and selectively expand internationally. Advertising spend from outside the U.S. on the platform was 19% in 2021, compared to only 8% in the prior year.

Looking ahead, for fiscal 2022, System1 anticipates revenue of $1 billion (20% growth) and an adjusted EBITDA of $174 million (37% growth).

What Are the Potential Risks?

Alongside the positive developments, it would be prudent to also consider potential risks for the company.

This year, Google (GOOG) announced a privacy move similar to Apple’s (AAPL). It is adopting new privacy restrictions which will cut down on tracking across apps on Android. Google is also working on the development of privacy-focused replacements for its advertising ID.

This change can impact organizations that are reliant on user tracking. While a focus on privacy can help tech behemoths address regulatory concerns, companies such as System1 can be impacted as a consequence.

The TipRanks risk factors tool also highlights these potential risks mentioned by the company in its recent annual report. System1 noted it relies on large-scale acquisition marketing channels such as Google for a substantial part of its consumer internet traffic, which improves the predictive power of RAMP, and System1’s revenue is tied to the performance of RAMP.

Moreover, a substantial portion of System1’s revenue is attributable to its agreements with Google and, as a consequence, is subject to Google’s practices.

What Does TipRanks Data Indicate?

System1 shares have been on a tear so far in 2022. Consequent to the robust Q4 showing, the stock’s trading volume rose over 10x, along with a 34% jump in the share price. Although the share price has subsided since then, the stock is still up about 46% so far this year.

Analysts seem to be divided on the stock. Evercore ISI analyst Shweta Khajuria has initiated coverage on System1 with a Hold rating and a $14 price target.

MeanwhileD.A. Davidson’s Tom Forte, has reiterated a Buy rating on System1, while increasing the price target to $26 from $23. The analyst views System1’s Q4 showing favorably and notes that the company did not see a significant impact from Apple’s privacy-focused initiative.

Importantly, Forte’s price target implies a potential upside of 85% for System1. Furthermore, System1 has been trending on various discussion boards and was the second most discussed stock on short-squeeze subReddits earlier this week.

Further, TipRanks data shows investor sentiment is very positive on System1 with the number of portfolios holding the stock up about 230% in the past 30 days alone. On average, investors allocate 10.74% of their portfolios to System1.

At the same time, corporate insiders have sold about $10.9 million worth of System1 shares in the last three months. Cannae Holdings which has more than a 10% stake in the company has sold shares worth $713,515 in the last three days.

Closing Note

System1 did not see a major impact from Apple’s privacy changes. The company is seeing rapid growth and stands to benefit from the rapidly evolving advertising market globally. Moreover, its RAMP platform, recent acquisitions, and portfolio of digital properties bode well for the company in the coming periods.

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