Brief on 1World Online

True ad revenue growth masked by the inclusion of token sales. Slowing and low ad revenues make 45 million valuation cap hard to justify

1WorldOnline is an ad-tech company that matches native ads from advertisers with publishers. The native ads are bundled together with a polling widget; occasionally, upon submission of the poll, the widget displays ads which bypass ad-blockers.

Source: https://republic.co/1world-online

1World Online offers a two-sided marketplace solution; while, its success depends on satisfying both publishers and advertisers, examining whether the product meets the demands of the advertisers is more crucial. Ad-reliant publishers are eagerly seeking new sources of ad revenue to offset losses and want the marginal ad dollar. They are the price-takers here. Advertisers, however, have compelling options like Facebook and Google, to spend their ad budgets. The success of 1World Online, therefore, depends on whether it offers a unique value prop to advertisers and gets them to divert some of their existing ad expenditure to its platform. We are bearish about this investment because we don’t think the company offers a compelling product for advertisers based on both the financial reports and our experience testing the platform.

The revenue figures of 1World Online grossly overstate the actual ad-related sales because they include token sales; the actual ad revenue data looks unimpressive. In 2018 and 2019, the company reported revenues of about 2.9 and 2.5 million dollars. This is inclusive of token sales which exceeded a million dollars in both years. Specifically, ad-related revenues were 1.57 and 1.31 million in 2018 and 2019, respectively. It is concerning that ad revenues are slowing. There was a 17 percent decline in ad-related revenues between 2018 and 2019. Further, over 90 percent of its ad revenues are from “Sale of Product Income” which refers to direct deals the company does with brands and agencies. Selling via direct deals with brands and agencies is more labor-intensive than selling via a self-serve platform (this is represented as “Online Advertising Income” in the chart below), adversely affecting margins.

Source:https://www.sec.gov/Archives/edgar/data/0001595734/000159573420000003/1worldformca.pdf

The best metric to find how valuable advertisers find 1World Online’s product would be to examine the churn. A negative churn would indicate that retained customers have increased their ad spend offsetting any customers who left. Given that returns on ad-buying can be quite easily quantified, it is reasonable to expect that if the product were indeed valuable, advertisers would increase their expenditure. Unfortunately, the company doesn’t provide much detail by way of case studies or data about advertisers in its write up on Republic. But given the declining ad revenue, it is reasonable to assume the company isn’t experiencing negative churn here and this further weakens the case for investment.

We weren’t impressed with our experience testing out the ad campaign management platform which advertisers would have to use to buy ads. The website is buggy and is filled with amateurish copy mistakes. We tested the platform twice, a week apart, but the website was stuck with the same spinning wheel of death on the first step of the ad placement process. The occasional copy mistake like “Register as Advertise now!” on the homepage further dents credibility.

The company to its credit has been able to get name-brand publishers like Newsweek and Forbes to embed its widget. However, as we mentioned earlier, 1World Online’s success depends less on getting publishers keen to make the marginal dollar but rather getting advertisers on board. It is hard to justify the valuation cap of 45 million given that ad revenues were just 1.3 million last year and slowing. The risk-reward doesn’t make sense here.