Sahm Adrangi’s Presentation On Ad Fraud At The Kase Short Selling

Sahm Adrangi’s presentation on ad fraud at the Kase Learning conference on short selling, 5/3/18.

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Sahm Adrangi
Image source: YouTube Video Screenshot

Sahm Adrangi's Presentation On Ad Fraud


There has been a demand for this sort of conference for a long time. And finally someone put it together something that I can't recall the short focused conference with as many activists short sellers past. So excited to be speaking. All right. And I work hard to keep this within 15 minutes. My name is Sahm and  I'm with Kerrisdale Capital. We've been in operation for nine years we manage approximately 180 million dollars. We built our business around short activism and like many of the short activists that will be up here we first began publishing our research on shorts in 2010. During the era of Chinese frauds when short sellers eradicated 10 to 20 billion dollars of capital that was being invested in fraudulent Chinese companies. And since then we focused mostly on U.S. names particularly in sectors that are complex.

We share research in a variety of ways. We post our research to our website. So please visit our site at carrousel cat dot com. You can subscribe to our research and review. Receive research via e-mail distribution list. We also post on Twitter with 25000 followers on Twitter handle is Keer still ACAP in certain cases where our research has broader appeal. We'll go on CNBC or Bloomberg. We also post on Seeking Alpha and we're the only other firm outside of perhing square to have a  live presentation on one of our shorts.

We did on Globalstar one of our favorite campaigns in our history our most recent short activism campaigns over the past two months have been on St. Joe a developer of land in the Florida Panhandle where we think the land is worth half of what the market value that we published on QuinStreet which is going to be part of the topic that I'm going to be presenting on today and proteome basis biotech with dark handed for cystic fibrosis that we think is going to fail. It's Phase 3 trials so let's jump to the topic that

I'm going to be discussing today which is opportunities in ad fraud. So one of the reasons I like add fraud is because it allows us to combine an element of social good within our short activism that's something we're always looking to do a lot of the names that we publish on are really about certain stock price should be lower than where it's trading at. But when we can find situations where in the Chinese fraud we can eradicate billions of dollars of Chinese frauds or if you think a Pershing Square campaign on Herbalife where he attempted to trigger reforms in multilevel marketing schemes that's an added benefit that can allow our research to have broader appeal.

And I think we have that when we're writing on it and we're short activists are writing on ad tech companies that are allowing that are benefiting from ad fraud on their platforms. So what is ad fraud if you just go to Wikipedia you'll see that ad fraud is defined as the practice of fraudulently representing online advertisement impressions clicks conversions or data events to generate revenue. So what does that mean.

Well let's say your Kellogg's or Coca-Cola and you're looking to spend twenty five thousand dollars on online advertisements.

Well if your display ads are put on a fake website that's not receiving any actual human traffic but rather it's only being viewed by computers. The traffic that's resulting in that site seeming substantial enough to be on the ad exchange is really just coming from computers and bots and bot nets. And when you add goes on that site it's only getting clicked on not by humans not by actual potential buyers of your Coca-Cola soda or your Kellogg's Cornflakes but rather by bots that are being designed by hackers in Eastern Europe that are really just looking to get that 25000 thousand dollars for them as opposed to having it go to a legitimate publisher that no real Internet users are visiting. Ad fraud is going on. And this is clearly bad for the online advertising landscape.

The more ad fraud that occurs the less the online advertising buyers are going to be willing to spend on online ads. And that's going to drive much needed revenue from legitimate publishers. And so one of the reasons that it's interesting for shote activists is because I'm one of the reasons that ad fraud is so pervasive is because the intermediaries here benefit oftentimes the ad exchanges and the ad agencies benefit from the number of clicks. The number of impressions that a certain online ad receives and the more ad fraud that occurs the more clicks occur. And we believe there are many instances that certain ad companies are benefiting from all the fraud that's going on and that's resulting in them being slow to adopt new detection schemes new ways of preventing the fraud.

And if they have say 25 percent of the traffic that's going through the exchange occur as a result of bots and Botan that's just clicking on their customers ads if they benefit from that then that provides an opportunity for short activists to come out explain what's going on and benefit on the short side or go through a few brief examples of specific types of ad fraud. You have click fraud that occurs in paper click online advertising where rather than humans clicking on a certain display ad you see automated scripts or bots entering those clicks. You'll have fake sites there are sites out there that have no content. A tremendous amount of traffic and then just fake it just ad after ad after ad and these are clearly put together by bad actors as a way to generate revenue via exchanges by selling sort of these fake impressions.

You have ads tagging and stuffing situations where let's say you've got a video ad and they'll be all other videos behind the ad that the Internet users seeing. Visit the site you'll watch a video. And behind that video there are other videos playing in the background. Those videos are getting charged to the online advertising buyer but they're not actually getting seen by anyone. You'll have instances where a given display ad is put in one by one pixel on a Web site. And so impressions getting counted when someone visits those Web sites. But again that ad is actually getting seen by anyone. I mean all of these instances the intermediaries benefit as those impressions rack up as those clicks rack up the ultimate loser is the buyer of the online advertisements.

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