Beacon remains bullish on Wishpond following Q1 results

Beacon Securities analyst Gabriel Leung is staying the course after good-looking quarterly results from Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH). In an update to clients on Thursday, Leung reiterated his “Buy” rating, saying WISH is currently trading at a discount to its peers.

Digital marketing platform Wishpond Technologies released on Thursday its first quarter 2021 financials, featuring record revenue of $2.9 million, up 74 per cent year-over-year. Gross profit was $1.8 million for a margin of 62 per cent, while the Q1 adjusted EBITDA loss was $318,779 compared to negative $3,610 a year earlier.

The first quarter was a busy one for Wishpond, which debuted on the TSX Venture Exchange in December. The company closed on two significant acquisitions in Invigo Media, a marketing tech company to the medical and healthcare industry, and PersistIQ, a SaaS-based sales engagement tech business. WISH also completed a bought deal for proceeds of $8.05 million including over-allotment and launched its Payments Product for payments processing. Since the end of the Q1, Wishpond also launched Marketing Funnels product for progressive lead profiling and upselling, while PersistIQ launched an Outbound Sales Solution.

“The first quarter 2021 was an historic quarter for Wishpond as it was the first full quarter since becoming a publicly listed company,” said Ali Tajskandar, Chairman and CEO, in a press release. “I am very pleased with our first quarter results in which we accomplished year-over-year growth of 74 per cent compared to the same period last year. First quarter results were driven by strong organic growth in the quarter and contributions from the acquisitions of Invigo and PersistIQ.”

“Thus far the integrations of both Invigo and PersistIQ have performed as expected. I am pleased to report that as at the end of March 2021, Wishpond achieved $1.2 million in monthly recurring revenue, setting the stage for strong financial results for the second quarter,” Tajskandar said.

For his part, Leung was calling for Q1 revenue and EBITDA of $2.7 million and negative $250,000, compared to the realized $2.89 million and negative $319,000. Leung estimated that Invigo and PersistIQ added about $750,000 to WISH’s topline for the quarter, which would imply a year-over-year organic revenue growth rate of about 29 per cent.

“This growth figure is even more impressive when we consider that ~78 per cent of revenues are derived from the US (WISH reports in Canadian dollars) and the company faced about a six-per-cent year-over-year currency headwind (based on average rates in Q1),” Leung said.

Leung said the second quarter could be even more challenging on forex as the US dollar is poised to be down versus the Canadian dollar by about 12 per cent year-over-year.

The analyst noted that at 62 per cent the Q1 gross margins were down from the previous quarter’s 65 per cent and 63 per cent a year ago, with the difference coming down to greater investments to support accelerated growth. But margins should return to the 65-70 per cent range as the company’s revenue scales up, Leung said, while EBITDA should also return to breakeven or positive over the second half of the year.

By the numbers, Leung thinks WISH will generate 2021 and 2022 revenue of $14.3 million and $19.0 million, respectively, and 2021 and 2022 EBITDA of negative $0.4 million and $1.9 million, respectively.

“Looking into CY21, we believe the company’s growth initiatives will revolve around integrating its recent acquisitions (along with accelerating cross-selling efforts), bulking up its direct sales team to drive strong organic growth and M&A to drive inorganic growth,” Leung said.

On valuation, Leung said Wishpond is trading at “a very healthy” relative discount, with the stock at 4.0x forward sales compared to its peer group at above 10x. Along with his “Buy” rating, Leung has maintained his $3.50 target price, which is based on 10x 2022 EV/Sales and at the time of publication represented a projected 12-month return of 126 per cent.

“Aside from valuation, we believe Wishpond remains a compelling investment opportunity given the positive secular growth trends underlying the e-commerce industry, the company’s strong organic growth trends, cash flow positive operations, along with its strong M&A funnel,” Leung wrote.

Wishpond bolted out of the gate when it started trading on the TSXV on December 11, more than tripling in early weeks of trading, but the stock has pulled back over the ensuing months, going from a high of $2.53 on December 29, 2020, to now around $1.50 per share.

Last month, with the launch of Marketing Funnels Wishpond said SMBs using its platform can now better monetize their website traffic, converting clicks and marketing leads into customers through the step-by-step funnel process.

“Often, the specific steps users go through on a website will determine the success or failure of a campaign,” Wishpond COO Jordan Gutierrez said in a press release on April 15. “Wishpond’s Marketing Funnels gives businesses full control over what users will see, and when. It enables businesses to create websites and campaigns with higher conversion rates and reduced shopping cart abandonment rates, resulting in a better return on investment. The impact can be remarkable.”

Disclosure: Wishpond is an annual sponsor of Cantech Letter