Better than expected results from KuuHubb (TSXV:KUU) have Echelon Wealth Partners analyst Ralph Garcea feeling bullish about the tech junior.
This morning, KuuHubb issued an update on its financial performance, offering a unaudited sneak peek at its Q2 numbers. The company estimated revenue at (U.S.) $6.2-million and noted that its monthly active users had reached seven million last month.
“I am very proud of what our team has achieved in a very short period. We are executing on the planned growth drivers with excellent results,” CEO Jouni Keranen said. “While we are still in early stage, the results from our geographical expansion, improving the social and monetization features and focusing on efficient, data-driven operations are starting to show. Kuuhubb has built a highly scalable platform to acquire, integrate and grow undervalued assets across the globe and we will continue to execute this strategy in 2018 by expanding it both organically and through acquisitions.”
Garcea broke down what’s behind the company’s momentum.
“Noted in the update is the implementation of rewarding videos to monetize Recolor’s non-paying user base which is resulting in a steady growth in video advertising revenue,” the analyst explains. “KUU only entered the Japanese market in December 2017, as part of a global expansion strategy – which will include India, Korea and China. Japan’s growing mobile gaming market represents a great opportunity for KUU’s flagship app Recolor – which is the world’s number one digital coloring book app. Female mobile gaming and lifestyle app usage in Japan provides very attractive growth opportunities. Mobile gaming revenues in Japan increased by ~35% yoy in the 12 months ending June 2017 (Source: App Annie & Dentsu, Oct 2017). Japan’s mobile revenues have now surpassed the US for three years in a row despite the US having three times as many smartphone users – i.e., Japan’s average revenue per user (ARPU) is much higher than in the US or Europe. KUU’s Japanese office will be led by three industry veterans with strong local ties: Sam Markkanen (Head of Kuuhubb Japan), Alex Nagayama (Head of Japanese Business Development) and Tsukasa Kuroiwa (Product Manager). We look for full FQ218 results by the end of February/early March and will provide a further update at that time.”
In a research update to clients today, Garcea maintained his “Speculative Buy” rating and one-year price target of $4.00 on KuuHub, implying a return of 170% at the time of publication.
Garcea thinks KuuHubb will generate EBITDA of negative $3.7-million on revenue of $24.8-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $3.5-million on a topline of $35.5-million the following year.
The analyst said KuuHubb is cheap compared to its peers.
“We believe there is plenty of upside in our estimates as KUU expands across demographics and into adjacent lifestyle categories (like interior design, fashion and jewelry, home and garden, etc). We note that the Global Social App comparables are trading on average (excl. FB) at a multiple of $58/MAU. Applying this multiple to KUU’s 7.0M MAU would value KUU at $406M (or C$7.50-8.50/shr),” he says.