Canaccord Genuity launches coverage of BBTV with a $24.00 price target

BBTV (BBTV Stock Quote, Chart, News TSX:BBTV) is on a sustainable long-term growth path, says Canaccord Genuity Capital Markets analyst Aravinda Galappatthige, who launched coverage on November 17 with a “Buy” rating and $24.00 target. Galappatthige said there’s a U-shaped profit trajectory in BBTV’s future as the company builds out its online platform.

Vancouver-based BBTV, which made its public debut last month, is a media and technology company aimed at monetizing online content for creators. Its VISO platform allows for end-to-end management of digital content where the company’s owned and licensed content is now at 596 million monthly unique views.

Galappatthige said the company’s Plus solutions will be its key driver going forward.

“BBTV is in the early stages of deploying its enhanced suite of services (Plus solutions). This includes services such as direct ad sales, where BBTV itself sources the advertising (at a much higher CPM), rather than the platform; content management/SaaS, which is on the enterprise side and involves digital channel and rights management; and mobile gaming apps, where BBTV develops and launches interactive apps around the larger content partners,” the analyst wrote.

“The emerging model is expected to drive significant changes to BBTV’s future, in that it carries substantially higher gross margins (20-30 per cent) than the base solutions (seven to eight per cent), serves to attract higher-end content creators, thereby strengthening BBTV’s competitive position, provides greater diversification of the business model and sets the business on a more sustainable, robust, longer-term growth path,” he said.

Formed 15 years ago, BBTV serves content creators and owners with a lean towards independent creators, who through BBTV arrive at an exclusive licensing agreement with annual terms and automatic renewal provisions. The market is large and growing, says Galappatthige, where earlier this year, Google released YouTube (where BBTV has the majority of its monetized views) ad revenues that amounted to US$15 billion in 2019, up 36 per cent year-over-year, with the tech giant projecting a 19-per-cent CAGR to 2024. Google said YouTube paid out US$8.5 billion in content costs in 2019, with the large portion of that going to the independent creator sector, according to Galappatthige.

The growing industry means there’s a “significant opportunity” to offer a range of services to creators, writes Galappatthige, such as audience development, channel management, analytics, rights management and enhanced monetization.

“In our view, in addition to the current size of the market and underlying increase in creators, the growing quality, volume of production and monetization opportunities of these content creators makes this a compelling industry,” he said.

The analyst pointed to a group of companies coming into the digital content management space over the past decade. Disney jumped into the industry with the 2014 acquisition of Maker Studio, a company with revenue of between US$25 and US$30 million at the time which was bought for US$950 million (US$500 million plus a US$450-million earnout). Other names emerging over the past five years include Awesomeness TV and Fullscreen.

But BBTV stands out from the bunch, Galappatthige said, for keeping up its growth trajectory while many of the others have faded, noting BBTV’s 94-per-cent retention rate for independent content creators and 91-per-cent rate for media companies. BBTV’s ramp-up over the past decade has been sharp, says Galappatthige, who noted a five-year revenue CAGR between 2014 and 2019 of 63 per cent, with audience views growing at a 77-per-cent CAGR by 2019.

“The quality of BBTV’s tech stack and broad value proposition is further evidenced by the fact that it has been able to extend its services to the enterprise segment, including the NBA, as well as major media networks such as Viacom, Turner and Univision,” Galappatthige said.

In 2013, BBTV sold a stake in its business (BroadbandTV) to European media company RTL and then repurchased that stake last month, using funds from its IPO. Galappatthige said having full control over BroadbandTV puts BBTV in a better position to execute on its growth strategy on its enhanced suite of Plus services, which should deliver higher margins than the company’s Base solutions. And with Plus currently accounting for just seven per cent of total revenues, much depends on executing in that capacity, Galappatthige said.

“Our expectations for BBTV reflect continued double-digit revenue growth but a U-shaped trajectory in terms of profitability. We see 2021 as very much a year of investment, during which the company focuses on building a stronger platform to reaccelerate the growth in Plus solutions,” he wrote.

By the numbers, Galappatthige thinks BBTV will generate 2020 sales and EBITDA of $434.7 million and negative $6.3 million, respectively, 2021 sales and EBITDA of $496.9 million and negative $9.5 million, respectively, and 2022 sales and EBITDA of $570.2 million and $3.0 million, respectively. (All figures in Canadian dollars except where noted otherwise.)

At press time, the analyst’s $24.00 target represented a projected one-year return of 97.5 per cent.

Disclaimer: Cantech Letter’s Nick Waddell owns shares of BBTV.