We’re still bullish on AcuityAds, says Echelon Wealth

Goff delivered a report to clients on Thursday where he maintained his “Speculative Buy” and $1.90 target price on the stock, which at press time represented a projected 12-month return of 63.8 per cent.

Targeted digital media company AcuityAds provides real-time bidding solutions for the digital advertising space. On Thursday, the company gave an updated outlook on its quarter ended June 30, 2020, saying the uncertainties surrounding COVID-19 and its economic impact prompted the update in the name of transparency for investors.

“April saw a significant drop in revenues as certain campaigns were paused or reduced by our customers. However, in May, we realized a strong rebound in campaign activity that has continued throughout June," said Tal Hayek, Co-Founder and CEO in a press release.

Management noted continuing, broad-based improvement in customer activity which is helping its Q2 revenues to likely be $18.5 million and gross margins in excess of 51 per cent. Adjusted EBITDA should be about $1.6 million and the company said its balance sheet continues to improve and that the company is “in a very strong financial position.”

In his report, Goff said the revenue and EBITDA projections of $18.5 million and $1.6 million, respectively, were better than his previous estimates at $17.5 million and $0.8 million, respectively, as well as the Street’s $18.2 million and $0.8 million, respectively.

Goff has now brought his Q2 forecast in line with AcuityAds’ projections.

The analyst argued that AcuityAds’ share price is trading at a discount to its peers, pointing to its closest competitor, The Trade Desk, which has fared better over COVID-19. Where AT is down almost 20 per cent year-to-date (as of Goff’s publication date), The Trade Desk is up almost 57 per cent, having experienced a sharp recovery from the market pullback. (At bottom, AT’s share price was down 46 per cent from beginning of the year levels and The Trade Desk was down 48 per cent from early year levels.)

Goff said that while The Trade Desk merits a premium, the difference is glaring.

“AT is currently trading at 2020 EV/Sales of 0.8x and 2020 EV/EBITDA of 8.8x as compared to its closest competitor The Trade Desk (TTD-Nasdaq, NR) that is trading at 2020 EV/Sales of 27.1x and 2020 EV/EBITDA of 109.0x. While TTD’s liquidity and scale are considerations for a premium, we see that AT is also gaining traction with larger contracts and we see further upside to our current 2020 AT’s valuation,” Goff wrote.

“We continue to see AT as an attractive acquisition candidate considering the strength of its product/service (measured by its ramping traction) along with its current valuation where an industry acquirer would look for significant technology savings where the acquirer moved onto the AT platform and in light of the pace of consolidation,” Goff said.

The analyst thinks AcuityAds will generate fiscal 2020 revenue and adjusted EBITDA of $91.4 million and $8.7 million, respectively.