WOW Unlimited Media is a double, Echelon Wealth says

Following the company’s third quarter results, Echelon Wealth Partners analyst Rob Goff is still bullish on WOW Unlimited Media (WOW Unlimited Media Stock Quote, Chart TSXV:WOW), if a little less so.

On November 29, WOW reported its Q3, 2018 results. The company lost $3.05-million on revenue of $17.7-million, a topline that was up 51.3 per cent over the same period last year.

“Wow continues to grow: We are very pleased with the launch of Wow! Preschool Playdate and Wow! World Kids on Crave TV, Canada’s premiere SVOD [subscription video on demand] platform from Bell Media. Our agreement to acquire a linear broadcast channel formally closed on Aug. 31. The company continues to build its brands domestically and internationally,” CEO Michael Hirsh said.

Goff notes that WOW beat his topline estimate, but says there are bottom line concerns due to heavier investment spending.

“WOW!’s valuation leans more towards art versus science at this point as production accounting and new initiative investments create significant near-term volatility about forecasts,” the analyst says. “Our PT reduction considers external capital markets, where the 35% YTD decline in the TSXV is a clear benchmark on investors applying tougher cost of capital measures to small capitalization names. We consider that a higher revenue, lower EBITDA forecast for 2018 may defer prospective gains as investors look for evidence of positive EBITDA for 2019. WOW! is focused on building scale and longer-term value with revenues exceeding forecasts while the contributing growth investments have resulted in higher near-term EBITDA drains. The higher revenue/investment profile supports positive revenue and EBITDA revisions for 2021 and beyond.”

In a research update to clients today, Goff maintained his “Speculative Buy” rating, but lowered his one-year price target on WOW from $2.40 to $2.00, implying a return of 108.3 per cent at the time of publication.

Goff thinks WOW will generate Adjusted EBITDA of negative $4.0-million on a topline of $72.0-million in fiscal 2018.