AcuityAds earns huge price target raise from Echelon

Echelon Capital Markets analyst Rob Goff delivered an update on Wednesday on tech sensation AcuityAds (AcuityAds Stock Quote, Chart, News, Analysts, Financials TSX:AT), whose share price has ballooned more than 1300 per cent over the past 12 months. Goff raised his target on AT from $21.00 to $33.00, saying there’s accelerated growth up ahead for the digital ad tech company.

AcuityAds provides real-time bidding solutions for digital advertising, has a demand side platform (DSP) for marketers and advertisers to run automated, targeted and fully customizable campaigns. The company reported its fourth quarter 2020 financials on Tuesday, showing revenue for the three months ended December 31 of $35.1 million, down nine per cent year-over-year but up 35 per cent from the third quarter.

AcuityAds attributed the decrease to continued COVID-19 effects on industries such as travel, leisure and entertainment, typically strong contributors to AT’s fourth quarter results. The company ended the quarter with working capital of $26.8 million compared to $1.7 million a year earlier.

“Despite the challenging economic environment, we generated record annual Adjusted EBITDA of $15.8 million and operating cash flow of $19.3 million,” said Tal Hayek, Co‐Founder and CEO, in a press release. “As expected, we saw a strong sequential improvement in our revenues in the fourth quarter. With 2020 now behind us, we are looking forward to resuming year‐over‐year revenue growth in 2021.”

In its update, Acuity management focused on the initial success of its Illumin platform, launched in October, with the company saying revenues should grow significantly over the first quarter 2021.

“We continue to believe illumin is fundamentally altering the programmatic advertising landscape, offering advertisers unique and powerful insights into their customers and empowering them with the capability to design, plan and execute consumer journeys in a simple and intuitive manner,” Hayek said.

Looking at the Q4 numbers, Goff said the company’s $35.1 million in revenue, $18.3 million in gross profit and $8.1 million EBITDA compared to his forecasts of $35.0 million, $18.1 million and $5.8 million, respectively, and the consensus $34.1 million, $18.1 million and $6.1 million, respectively.

Goff sees growth coming from Illumin as well as AcuityAds’ connected TV (CTV) business, which generated $1.5 million and about $1 million in fourth quarter sales, respectively.

“The momentum around Illumin and CTV support growing prospects of more aggressive organic growth scenarios that would lean more towards our bullish scenario,” Goff said.

“Management referenced the eMarketer market forecasts where the US programmatic advertising market was put at $94 billion for 2020 gaining $10 billion on the year with forecasts at $118 billion and $140 billion for 2021 and 2022, respectively. The CTV market was put at $4.4 billion in 2020, up from $3.4 billion in 2019 with 2021 and 2022 forecasts calling for $7.2 billion and $8.9 billion, respectively,” Goff wrote.

The analyst increased his forecasts on AT and is now calling for 2021 revenue and adjusted EBITDA of $131.1 million and $21.0 million, respectively, and for 2022 revenue and adjusted EBITDA of $164.1 million and $29.5 million, respectively.

Goff spent some time in his report going over the comparatives between AcuityAds and its peers, with US ad tech company The Trade Desk particularly in focus. The analyst forecasted 2021 will see AT generate profit (net revenue) growth of 21.9 per cent year-over-year compared to The Trade Desk at 34.0 per cent.

Goff estimated AT to be currently trading at a 2021 EV/Gross Profit multiple of 20.0x and a 2021 EV/EBITDA multiple of 62.6x compared to The Trade Desk at 43.1x and 102.1x, respectively.

With his report, Goff has reiterated his “Speculative Buy” rating with the new target of $33.00, which at the time of publication represented a projected one-year return of 32.5 per cent. The analyst said his target reflects multiples of 26.7x and 21.9x AcuityAds’ 2021 and 2022 EV/profits whereas his SaaS AdTech comps trade at 22.7x 2021 EV/Gross Profit and 17.9x 2022 EV/Gross Profit and his Canadian Technology comps trade at 12.7x 2021 EV/Gross Profit and 9.1x 2022 EV/Gross Profit.

As for upcoming catalysts, Goff referenced marquee customer wins on the Illumin platform (targeting million-dollar-plus wins), acquisitions by AcuityAds and potential takeover speculation.

“The Company’s financial and technology momentum has clearly made it a more attractive acquisition candidate,” Goff wrote. “Alternatively, we would expect potential acquisitions to be well received as the Company’s platform (in-house technology) would be expected to support immediate accretion or alternatively acquisitions could lever illuminTM to expand its total addressable market.”

“We look for AT to acquire ad-tech companies with technology complementing its broader service ambitions on the Illumin platform. We look for consistent margin expansion against net revenues as the existing cost structure is capable of servicing significantly higher revenues with sales commissions representing the largest variable expense,” Goff wrote.