Newly-IPO’d BBTV (BBTV Stock Quote, Chart, News TSX:BBTV) has seen its share price drop since debuting in late October, but the stock is well oversold, says Eight Capital analyst Kevin Krishnaratne, who launched coverage of the stock with a “Buy” rating and $22.50 target.
Krishnaratne sees double-digit revenue growth going forward as the company uses its massive scale in online video to boost sales and drive profits.
Founded in 2005 by current CEO Shahrzad Rafati as a service to video content creators to claim and monetize their content on platforms like YouTube, BBTV sold a chunk of its operating business, BroadbandTV, to European media firm RTL Group back in 2013 and only regained that portion (51 per cent) by going public itself last month and raising $172.4 million at $16.00 per share. Since then, however, BBTV’s share price has fallen to now just under $10.00.
The company released third quarter earnings on November 13 where it posted revenues up 31 per cent year-over-year to $120.7 million and an 18-per-cent increase in views to 121.2 billion across all platforms, with Rafati saying the company plans to invest in its technology, scaling and expansion via accretive acquisitions.
“The strong growth in digital content consumption such as short form videos means our unique solutions are in more demand than ever, as content owners need our platform expertise to help them increase views and improve revenue generation across the growing number of digital platforms while allowing them to focus on their core competency – content creation,” said Rafati in the third quarter press release.
“While the scale of BroadbandTV’s library of licensed and owned content positions it well against traditional Media players, it is much more differentiated given its leveraging of Technology to efficiently acquire content, ensure brand safety and accelerate advertising revenue for its clients…”
In his coverage initiation, Krishnaratne said BroadbandTV has built an impressive business over its 15 years, as is clear from the scale of its content library, now attracting 596 million monthly viewers, which is almost four times that of Facebook and more than half that achieved by industry leader Google.
“BroadbandTV’s network drives two times the level of watch time to its nearest player, while the creators it signs onto its platform experience strong ROI with a reported 19-per-cent year-over-year lift in ad revenues across all content owners (29 per cent for Enterprises),” Krishnaratne wrote.
“We see the company’s scale, together with its technological moat built on billions of video data points, as driving differentiation in the market with no direct peers, evidenced by BroadbandTV’s strong retention rates of 95 per cent of Views for all content owners based on September last 12 months, 2020,” he said.
By the numbers, the analyst sees BBTV growing both revenue and profit at an accelerating pace through to 2023, with gross profit being driven by leverage in the company’s model and the addition of higher revenue and higher margin Direct Ad sales. Krishnaratne is calling for 2021 revenue and adjusted EBITDA of $493.8 million and negative $8.2 million, respectively, and for 2022 revenue and adjusted EBITDA of $598.6 million and $6.3 million, respectively.
At press time, Krishnaratne’s target price of $22.50 represented a projected 12-month return of 85.2 per cent. His target is derived from a 9.0x gross profit multiple based on his 2022 estimates, which would still be a slight discount to BBTV’s peers in Specialty Media, Streaming/Social Media and Advertising Technology which the analyst tracks at 11.0x 2022 estimates.
“The company possesses elements of Media, Technology, Subscription Software and Mobile Gaming that we think are all worth acknowledging in the context of valuation,” Krishnaratne said. “While the scale of BroadbandTV’s library of licensed and owned content positions it well against traditional Media players, it is much more differentiated given its leveraging of Technology to efficiently acquire content, ensure brand safety and accelerate advertising revenue for its clients. We also see opportunities for its Technology platform to deliver SaaS and Mobile Gaming revenue to create value for many players in the Media Tech ecosystem, including Content Owners, Brands and Social Networks/Video Platforms.”
“While an argument can be made for applying an even higher multiple closer to Streaming/Social Media platforms in the mid-teen EV/Gross Profit range, we acknowledge BroadbandTV’s size relative to these peers. However, we also think that as the company continues to scale and demonstrates continued execution of its Direct Ad strategy, opportunities for us to increase our target multiple exist,” he said.
BBTV gave on Wednesday, November 25, a corporate update, saying revenue and gross profit growth rates have continued to increase through mid-fourth quarter over the same period in the third quarter. For the month of October, the company reported revenue up 45 per cent and gross profits up 25 per cent, both compared to a year earlier, saying the fourth quarter is typically BBTV’s highest revenue quarter due to seasonal ad spending.
“BBTV’s business continues to grow from strength to strength with continued progress in revenue and gross profit generation,” said Rafati in a press release.
Disclosure: Cantech Letter’s Nick Waddell owns shares of BBTV.