EQ has price target raised to $2.60 at eResearch

Investors can expect a nice revenue ramp for EQ Inc (EQ Inc Stock Quote, Chart, News, Analysts, Financials TSXV:EQ) in 2021, according to eResearch director of equity research, Chris Thompson, who delivered an update report on Monday where he kept his “Buy” rating but upped his target price from $2.00 to $2.60.

Toronto-based EQ uses geospatial data, machine learning and advanced analytics to enable businesses to understand, predict and influence customer behaviour. The company is one of the largest providers of location-based data in Canada with over one petabyte of data.

EQ reported its fourth quarter and full year 2020 financials on April 15, showing revenue for the year of $10.4 million compared to $9.0 million for 2019, while revenue for the fourth quarter was $3.6 million, which was up 27 per cent year-over-year and up 28 per cent sequentially. The adjusted EBITDA loss for the quarter was $0.1 million, which was the same as the Q4 2019.

Calling 2020 a very difficult year, EQ CEO and President Geoffrey Rotstein commented on the company’s resilience during the pandemic year.

“Our platforms are designed to help businesses understand consumer behaviour and make better strategic decisions. As we have seen over the last 12 months, data is becoming an essential component of every business decision and our ability to provide unique solutions continues to gain momentum,” Rotstein said.

Breaking down the numbers, in its fastest-growing segment EQ had Q4 data solutions revenue of $0.98 million, up 38 per cent year-over-year and now accounting for 27 per cent of quarterly revenue. Advertising Services revenue continues to make up the bulk of revenue at 72 per cent in the Q4 but that’s down from over 84 per cent in Q4 2019.

Looking at the quarter, Thompson had been calling for revenue and adjusted EBITDA of $3.5 million and $244,000, respectively, compared to the actual Q4 revenue and adjusted EBITDA of $3.6 million and negative $127,000.

Thompson is upbeat on EQ’s future, saying, “When the North American economy finally restarts, EQ’s technology will play an important role for businesses to understand consumer behaviour in a post-COVID-19 world. EQ offers a unique value proposition in the market as it gives customers the ability to understand what consumers are looking for and then present them with the most relevant content and advertising.”

Thompson said investors can expect EQ’s future M&A to target the United States, which in the fourth quarter accounted for less than four per cent of the company’s revenue. Thompson said he’s awaiting an acquisition that could facilitate entry into the US..

“For 2021 and beyond, we assume that there is a potential for EQ to significantly increase revenue by shifting some sales & marketing efforts to the US market. The US is the largest advertising market in the world and, according to AdWeek, the US advertising industry spend is expected to reach almost US$390 billion in 2020. Canada ranked tenth in advertising expenditures and spends about twenty times less than the US The deal with the US publisher announced in November is a good indicator of the future potential in the US market,” Thompson wrote.

The analyst said with the recent financing — EQ closed in February on an equity offering for gross proceeds of $11.5 million — the company’s balance sheet looks strong.

Looking ahead, EQ declined to provide guidance for the Q1 2021, but Thompson referred to the company’s MD&A report which noted that COVID-19 and government restrictions along with a low seasonality effect would likely make for a slow start to the year. As such, the analyst has adjusted his projections and is now calling for 2021 revenue of $14.5 million and EBITDA of $0.2 million and 2022 revenue of $23.2 million and EBITDA of $3.0 million.

On EQ’s growth strategy, Thompson said, “EQ has demonstrated the ability to grow revenue organically through product development but has made tactical business acquisitions when the Company saw a need to fill a technical or skills gap. In the past two years, EQ has completed two acquisitions: Tapped Networks and certain assets of Curate Mobile Ltd., including Juice Mobile. As EQ continues with its U.S. expansion, an acquisition of a U.S.-based company could speed up revenue growth and client acquisition.”

At press time, Thompson’s new $2.60 target represented a projected 12-month return of 60.5 per cent.

Last month, EQ announced the launch of ATOM NEXT, the company’s geospatial cohort-based audience platform to aid marketers in reaching their target audiences. EQ said ATOM NEXT is perfectly positioned to the evolving advertising landscape.

“Cohort models protect user privacy by aggregating them into larger, more anonymized groups,” said Chief Operating Officer Joe Strolz in a press release. “Marketers need tools that provide high-confidence predictions about the relevance of one audience cohort versus another, which is what our machine learning and AI models have been trained to solve.”