Paradigm lowers price target on AcuityAds, maintains buy rating

He still thinks AcuityAds (AcuityAds Stock Quote, Chart, News: TSXV:AT) is a great way for investors to play the adtech space, but in light of recent guidance revisions Paradigm Capital analyst Kevin Krishnaratne thinks it will take the company longer to get to where it’s going.

On Monday, AcuityAds issued a press release in which it said that, owing to various factors, it would not meet its previous guidance.

“”We feel strongly that our actions this quarter demonstrate that management has taken a long-term view to creating and enhancing shareholder value,” said CEO Tal Hayek. “When we see any activity that does not meet our high standards, we move swiftly and without compromise. When we acquire, we are meticulously focused on deal structure to mitigate risk. Despite these adjustments to our revenue guidance, we remain more committed than ever to both our organic and non-organic growth strategy.”

Krishnaratne says this development kicks the can down the road a bit.

“Acuity provided revenue updates for H2/17 that were well below our estimates and the Street’s. Our 2017 forecast moves lower by -25% to ~$60M to match management’s expectations that now imply relatively flattish organic growth for the year (+50% as reported when including M&A). While we still remain of the view that Acuity is one of the best ways to play the AdTech space and see multiple opportunities for upside to our estimates on the back of cross-selling initiatives, M&A, and the ongoing transition of media spending toward programmatic, we have taken a more conservative valuation approach.”

In a research update to clients today, Krishnaratne maintained his “Buy” rating on AcuityAds, but lowered his one-year price target on the stock from $8.00 to $3.75, implying a return of 74 per cent at the time of publication.

Krishnaratne thinks AcuityAds will generate EBITDA of $1.1-million on revenue of $30.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of $5.6-million on a topline of $39.3-million the following year.