Scotiabank analyst Jeff Fan in staying bullish on Vancouver-based media tech company BBTV Holdings (BBTV Holdings Stock Quote, Chart, News, Analysts, Financials TSX:BBTV) after its latest quarterly earnings. BBTV’s growth strategy is still on track, according to Fan, whose March 5 update to clients maintained his “Sector Outperform” rating and one-year target price of $19.00.
BBTV, whose platform helps online content creators monetize their video content through end-to-end content management, distribution and monetization, delivered its fourth quarter and full-year 2020 results on March 4, showing record quarterly revenue of $150.8 million, up 40 per cent year-over-year, and adjusted EBITDA of $1.0 million versus $0.7 million a year earlier. BBTV finished 2020 with $16.0 million in cash and short-term investments.
CEO Shahrzad Rafati said BBTV has seen an acceleration in its growth trajectories coming off an initial industry-wide slowdown related to the COVID-19 pandemic.
“We exceeded our expectations on all of our core key performance indicators this quarter including growth in revenue, views and revenue per thousand views,” Rafati said in a press release. “We are especially bullish on the next few quarters as we continue to see strong momentum in the growth of our higher margin Plus solutions which positions us well to accelerate revenue growth and enhance margins in the coming quarters.”
BBTV’s numbers for the full 2020 year saw revenue hit $459.0 million, up 23.3 per cent from 2019, and an adjusted EBITDA loss of $2.6 million compared to positive $1.0 million in fiscal 2019. The company chalked up the drop in earnings to increased strategic investments in sales and marketing, which Rafati said would pay off in the long run.
“To capture more market share in the wake of the pandemic, we reduced our revenue share to gain more influencers and significantly more views on the BBTV platform. As a result, we are well positioned to maximize monetization on the platform and to expand our revenue streams going forward. To maximize our opportunity, we are actively investing in sales and marketing capabilities across our higher margin solutions,” Rafati wrote.
The Q4 came in slightly better than expected, according to Fan, where he was calling for a 35-per-cent uptick in revenue compared to the resultant 40 per cent, while the $1.0 million in EBITDA was better than the analyst’s $0.3-million estimate.
Fan noted that revenue per thousand views grew by 21 per cent over the quarter to $1.25, while direct sales performance grew by 57 per cent. The analyst said the currently strong digital ad spending environment is likely to keep revenue growth healthy for BBTV in 2021, even taking the Q1 seasonality into account.
BBTV’s gross margin for the quarter was 7.5 per cent compared to 9.3 per cent for Q4 of 2019 but better than 7.3 per cent for the third quarter 2020. Fan said the company’s gross margin should stabilize now that the company’s penetration pricing is mostly behind it.
“The decline in gross margin in 2020 was driven by BBTV signing lower margin deals with content providers to gain market share, which we expect is mostly behind them as the company now focuses on shifting content creators to higher margin plus solutions. Overall our thesis of revenue growth levered to digital video advertising and margin expansion remains intact,” Fan wrote.
Overall, Fan said the company’s growth strategy remains on track to drive gross margin and valuation.
“BBTV continues to sign new international content agreements while resigning and expanding partnerships with existing partners, including renewing the content management agreement with the NBA,” Fan said.
“Subsequent to year end, BBTV has expanded content management and direct advertising sales to TikTok and Instagram. BBTV is showing progress on driving continued revenue growth, and margin expansion through a shift to higher margin plus solutions,” he wrote.
For the upcoming 2021 year, Fan is estimating BBTV will generate revenue of $501 million, negative adjusted EBITDA of $6.8 million and negative adjusted EPS of $0.93 per share. At press time, his $19.00 target represented a projected one-year return of 81.2 per cent.
BBTV announced the renewal and expansion of its agreement with the National Basketball Association in mid-January, where NBA Playmakers, a joint commercial partnership between BBTV and the NBA will move beyond YouTube to additional platforms like Facebook and TikTok, while NBA Playmakers influencers will have access to official NBA footage.
“We are thrilled to continue to connect our fans around the world with compelling digital content through our NBA Playmakers partnership with BBTV,” said Jeff Marsilio, NBA Senior Vice President, New Media Distribution, in a BBTV press release on January 14. “Offering Playmakers content across additional social media platforms presents a unique opportunity to expand the reach of our growing community of creators.”
Disclosure: Nick Waddell is a shareholder of BBTV.