Wishpond wins bullish new $3.00 target at Beacon Securities

Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts: TSXV:WISH) has gone nowhere but up since its debut earlier this month but there should be more where that came, says Beacon Securities analyst Gabriel Leung, who likes the company’s new acquisition in the digital marketing services space. Leung delivered a corporate update to clients on Wednesday where he reasserted his “Buy” rating and raised his price target from $2.50 to $3.00, which at press time represented a projected one-year return of 81 per cent.

Vancouver-based Wishpond provides online marketing business solutions with an ‘all-in-one’ platform for marketing, promotion, lead generation and sales conversion, with a subscription SaaS-based service which also includes marketing campaign design and management. The company was started in 2009 and began trading on the TSX Venture earlier this month with an aggregate of about 2.7 million common shares outstanding, while at the same time Wishpond completed a financing round for proceeds of $4.6 million.

The company announced on Tuesday an agreement to acquire Surrey, BC-based Invigo Media Corp, a SaaS-based provider of technology and digital marketing services to medical and related businesses in Canada and the US. Wishpond is paying $835,000 in cash on closing (expected in early January 2021) along with a two-year earn-out based on adjusted EBITDA growth which is payable in shares up to $5 million and in either cash and/or shares in excess of $5 million. WISH projects a total purchase price of about $3 million including earn-out payments.

Wishpond said this, its first transaction, is part of an overall strategy to grow organically through tuck-ins, where, in Invigo’s case, the company is expected to accelerate WISH’s product roadmap “by adding new functionality to improve the customer experience with [WISH’s] platform.”

“We are very pleased with the proposed acquisition of the Invigo Group as it opens the doors to a very attractive vertical in the medical and digital health related sectors for Wishpond,” said Ali Tajskandar, Wishpond CEO, in a press release. “Our objective is to be an acquirer of marketing technology and services companies in North America with the overarching goal of significantly growing Wishpond’s market share in the upcoming years.”

Wishpond said Invigo’s proprietary technology is “very complementary” to WISH’s sales and marketing automation tools, with key features including customer relationship management, reputation management, call tracking, marketing automation, mobile marketing through SMS, pay-per-click management, sales funnels and analytics.

Looking at the deal, Leung said in his report that Invigo has an annualized revenue run-rate, largely from recurring subscriptions) of $2.7 million and EBITDA margins exceeding 20 per cent, while over the past three years Invigo’s sales have been growing at a plus-20-per-cent CAGR.

“In our opinion, this transaction is very positive for several reasons. First, Invigo’s financial and takeout metrics are both very attractive and we expect the acquisition to be immediately accretive to Wishpond. Second, Invigo introduces a new vertical (healthcare) to Wishpond and also helps to accelerate Wishpond’s product roadmap by adding new functionality. And lastly, Invigo will be able to leverage Wishpond’s sales and managed services capacity to accelerate its own sales growth,” Leung wrote.

Based on the expected minimum payment of about $3 million, Leung estimates Wishpond will have paid about 1.1x sales and about 5.6x EBITDA for Invigo. Looking ahead, Leung is forecasting full 2020 revenue and EBITDA of $7.8 million and $0.4 million, respectively, and 2021 revenue and EBITDA of $12.6 million and $1.1 million, respectively.

“For the purposes of our model, we have assumed an end of January close and flat revenue growth for Invigo in 2021 with growth in 2022 (to be conservative). This leads to an increase in our target price to $3.00, which is based on 8x CY22e EV/Sales (unchanged),” Wishpond said.

Last week, Wishpond reported its third quarter 2020 financials, featuring revenue up 38 per cent year-over-year to $2.1 million and adjusted EBITDA up to $175,653 versus $116,495 a year earlier. Cash from operations was $286,152 million compared to negative $28,530 a year earlier.

Leung reviewed Wishpond’s Q3 in a December 16 report, saying the results were better than expected (the analyst had called for revenue of $1.8 million and EBITDA of $53,000) and we indicative of both strong macro tailwinds behind the company’s business and its internal sales, marketing and R&D initiatives.

On the quarterly results, Tajskander said in a December 16 press release, “Third Quarter 2020 was another outstanding record quarter as the Company experienced significant revenue growth compared to the third quarter last year and we exceeded $8.3 million on an annualized revenue run-rate basis. In addition, we reported strong Gross margins, positive operating income, operating cash flows, and Adjusted EBITDA demonstrating our relentless focus on profitable growth.”

Wishpond is an annual sponsor of Cantech Letter