Wishpond wins “Buy” rating, $2.60 target at Paradigm Capital

Paradigm Capital analyst Daniel Rosenberg initiated coverage of Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH), arguing that the SaaS-based marketing company has found a profitable niche in the small and mid-sized business environment. Rosenberg’s report on Friday started out WISH with a “Buy” rating and $2.60 target price, which at the time of publication represented a projected 12-month return of 40.5 per cent.

Vancouver-based Wishpond has a digital marketing all-in-one platform offering features such as landing pages, social promotion campaigns, marketing automation, customer management and integrations. Founded in 2009 by current CEO Ali Tajskandar, Wishpond went public through a reverse takeover with Antera Ventures and started trading on the TSX Venture in December 2020.

RTO’ing at $0.75, WISH almost immediately shot up to $2.50 before trailing off and currently trading around the $1.80 range. But Rosenberg sees upside to the name, saying that by focusing on an under-served segment, Wishpond has seen rapid growth at currently a rate of 30 per cent per year with industry-leading retention rates.

“For small and mid-sized businesses, the demand and expectation for digital marketing solutions has grown significantly. Once upon a time, these solutions were reserved for enterprise customers with enterprise-sized budgets. Wishpond is bringing premium marketing features and services and making them available to SMBs at a fraction of the cost,” Rosenberg said.

The analyst pointed to the shift in consumer behaviour toward online experiences, one that had been ongoing for years but was accelerated by the COVID-19 pandemic and has pushed companies to up their digital game in order to connect with customers. Rosenberg said a survey of SMB sales teams on customer preferences suggested that 72 per cent of customers expect to communicate through their preferred channel and 46 per cent prefer to communicate digitally, while 56 per cent of users wanted to purchase online.

As for the breadth of the SMB field, Rosenberg quoted a US stat saying small and medium-sized businesses make up 44 per cent or about $5.90 trillion of US GDP, putting the potential addressable market for WISH in the tens of billions of dollars.

“While many SMBs may not be using technology today, demographic changes in business owners should be supportive of this market increasingly adopting technology solutions,” Rosenberg wrote.

“While Wishpond’s solutions lend themselves primarily to retail and service sectors, the span of industries that Wishpond serves is diverse. There is opportunity to expand and specialize in certain sub-sectors. We view the medical and wellness service and financial services industries as having particularly good traits for expansion – being high- value services with under-digitized customer experiences, characterized by a strong relationship focus and legacy practices that could benefit from efficiency,” he said.

By the numbers, Wishpond delivered its third quarter 2020 financials in mid-December, showing revenue up 38 per cent year-over-year to $2.1 million and adjusted EBITDA of $175,653 compared to $116,495 a year earlier. The company ended the quarter with $1.3 million in cash, while in early February Wishpond closed on an $8.05-million bought deal financing round.

Wishpond said in its Q3 press release that its priorities are three in number: “(1) to achieve organic growth from operations; (2) accelerate the company’s product development efforts; and (3) growth through acquisition of highly promising technology and marketing agency partners through a disciplined capital allocation strategy.”

On that organic growth, Rosenberg said he expected WISH to grow at 30 per cent over the next two years, while inorganically he related that management’s goal is to execute five to ten transactions over the next 24 months.

As to the competitive landscape, Rosenberg said Wishpond’s breadth of offering stands out.

“[Wishpond] faces competition from many providers, though we note many have a narrow focus, offering point solutions. For example, there are many landing page creators like Squarespace, Unbounce and WordPress, but they do not offer a full spectrum of marketing solutions. In e-mail marketing, MailChimp offers robust services but not a deeply functional CRM. The most relevant comparisons we see are marketing suite software providers like HubSpot, Marketo, Salesforce/Pardot and Act-on. We note that these full-featured offerings generally cater to businesses with in-house marketing teams or agencies who are using the software with many clients,” Rosenberg wrote.

On valuation, Rosenberg is valuing WISH with a 10x EV/Revenue multiple, saying that the company’s peer group, composed of CRM and marketing software providers and small-cap Canadian technology providers, trades at an average of 8.3 EV/Revenue whereas WISH is currently at 6.8x.

Rosenberg is calling for Wishpond to generate full 2020 revenue and adjusted EBITDA of $7.8 million and $0.4 million, respectively, and 2021 revenue and adjusted EBITDA of $13.0 million and $1.1 million, respectively.

Rosenberg said WISH is in the very early stages of its growth opportunity.

“We see a huge market with limited competition for Wishpond to capitalize on,” he wrote. “Additionally, it can accelerate its growth through M&A and management has already demonstrated strong M&A execution through its first two deals. We believe long-term trends will be supportive of increasing the use of digital services within SMBs and Wishpond has an opportunity to establish itself as a dominant player in marketing software in the long term.”