IPO of The Trade Desk bodes well for AcuityAds, says Haywood

Haywood analyst Pardeep Sangha thinks is AcuityAds’ (AcuityAds Stock Quote, Chart, News: TSXV:AT) closest comparable just had a very successful IPO, something the analyst believes bodes well for the Canadian programmatic ads player.

Yesterday, after IPO’ing at $18, The Trade Desk closed at $30.10. It was a strong performance, especially considering the IPO was initially priced in the range of US$14-16 but was increased to US$16-18 due to strong demand.

“That’s a good start, particularly considering that adtech companies have struggled recently on the public markets, which has made venture capitalists wary of the industry, as well, said TechCrunch writer Andy Ha.

Sangha today broke down the way AcuityAds compares to The Trade Desk.

“The Trade Desk’s rich valuation creates significant potential for Acuity’s share price,” says Sangha. It is important to note that The Trade Desk reports revenue net of media costs, whereas Acuity reports revenue on a gross basis. Hence, Trade Desk would typically record 50% of the revenue Acuity would record, resulting in higher gross margins and valuation multiples for The Trade Desk. The Trade Desk is currently trading at 6.9x EV/Revenue and 21.9x EV/EBITDA based on LTM figures. Taking into consideration the difference in revenue recognition policies, we would apply half of the revenue multiple to appropriately value Acuity. Applying a 3.5x EV/Revenue to our FY17 revenue estimate $50.9-million would result in a target price of $6.50.”

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $3.50 on AcuityAds, implying a return of 68.5 per cent at the time of publication.

Sangha believes AcuityAds will lose $900,000 on revenue of $32.1-million in fiscal 2016, numbers he expects will improve to a profit of $1.5-million on revenue of $50.9-million the following year.