Digital advertising business AcuityAds (AcuityAds Stock Quote, Chart TSXV:AT) had a record quarter which was boosted by some marquee wins, but there’s more where that came from, says Echelon Wealth Partners analyst Rob Goff, who in an earnings update on Tuesday upped his target price from $3.60 to $3.80 while maintaining his “Speculative Buy” rating for AT.
AcuityAds on Monday released its first quarter ended March 31, 2019 with CEO Tal Hayek saying the strides made by the company are a result of investments in the company’s latest AI technology release as well as the strength of the company’s team.
“As previously disclosed, Acuity received a $7-million contract in the quarter, representing the largest customer contract in the Company’s history. The vast majority of this campaign ran in the first quarter and as expected, at a lower gross margin, resulting in a lower overall margin in the quarter. We expect margins to increase in Q2 and throughout the remainder of the year,” Hayek wrote in a press release.
For the quarter, Acuity reported revenue and EBITDA of $27.9 million and $1.016 million, both of which beat Goff’s forecasts of $19.3 million and $0.132 million, respectively. The analyst says he was impressed with Acuity’s organic performance in both its self-service segment, which grew by 144.6 per cent year-over-year to $6.3 million and in its Canadian revenues which grew by 63.4 per cent year-over-year.
Goff says that the marquee $7 million win had a clear impact on the quarter and will likely send the industry a strong message as AT looks to make further inroads.
“We retain our longstanding positive view towards AT’s programmatic platform,” says Goff. “It was this view that prompted our decision to add AT to our Top Pick portfolio as of September 2018 when the shares were at $1.13. We noted at the time that we were taking the uncharacteristic move of adding a turnaround situation into our portfolio given the expectation that revenue traction was set to take on a new trajectory.”
Goff says that there’s a valuation gap between Acuity and competitor in the space The Trade Desk, where the latter is currently valued at 14.3x EV/Revenue and 48.4x EV/EBITDA for 2019 compared to Acuity’s 1.9x and 9.5x, respectively. On that note, Goff says, “While The Trade Desk’s scale, capital flexibility, and execution warrant a premium, the valuation gap warrants consideration before considering takeout potential.”
The analyst is calling for fiscal 2019 revenue and Adjusted EBITDA of $107.5 million and $9.8 million, respectively. His $3.80 target represents a projected 12-month return of 145.2 per cent at the time of publication.