Strong organic growth prospects and an accretive M&A agenda are a winning combination for Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH), according to Eight Capital analyst Christian Sgro, who initiated coverage of the stock on Tuesday with a “Buy” rating and $2.50 target price.
Vancouver-based Wishpond is a provider of SaaS-based digital marketing solutions, with an all-in-one suite of services covering marketing, promotion, lead generation and sales conversion and geared at the small- to medium-sized business (SMB) crowd. Founded in 2009, Wishpond made its public debut on the Venture Exchange on December 11, 2020, and is currently up about 100 per cent.
Sgro said Wishpond is an organic growth story with plus 30 per cent annual growth expected to continue going forward along with its M&A upside.
“The company has proven its ability to grow organically (40 per cent-plus CAGR since 2017), while maintaining EBITDA profitability,” Sgro wrote. “The company’s reported 3.5:1 LTV to CAC ratio gives us confidence that investment in the business will convert into strong organic sales growth. New product roll-outs and up-sell to fully managed services will drive increases in ARPU and customer retention. We believe Wishpond is well positioned as an affordable, end-to-end solution for SMBs in need of a digital marketing presence.”
On the acquisition front, the company has completed two acquisitions so far in 2021 in Surrey, BC-based Invigo, a CRM and performance marketing business, and PersistIQ from San Mateo, California, a sales engagement technology. The Invigo buy was for $3.0 million comprised of $0.8 million in cash and $2.2 million in earnouts and the PersistIQ deal was for US$3.0 million comprised of US$1.0 million in cash, $1.0 million in stock and $1.0 million in earnouts. (All figures in Canadian dollars except where noted otherwise.)
In terms of its addressable market, Sgro pointed to a Grand View Research report claiming that the digital marketing software space is estimated to be over US$10 billion in the United States with an estimated CAGR of 17.4 per cent through to 2027 and driven by the ongoing digital transformation which is seeing companies spending an increasing portion of their marketing and advertising budgets in seeking online visibility and customers, along with the growing capabilities of marketing companies to aggregate data more effectively in recognizing buying patterns so as to optimize marketing campaigns.
“The market is deeply fragmented and competitive. However, we believe the pie is large enough and growing fast enough that Wishpond’s competitive advantages position the company to take share,” Sgro said.
“According to management, most wins are greenfield, signing on SMBs who do not have a solution currently. We believe this separates Wishpond from larger peers who compete for sizeable enterprise wins and the attention of CMOs,” he said.
Last month, Wishpond announced its fourth quarter and full year 2020 earnings, showing record annual revenue of $7.9 million, up 30 per cent from 2019, with gross profit of $5.2 million and adjusted EBITDA of $494,902 compared to $103,477 in 2019. For the fourth quarter, revenue was up 38 per cent year-over-year to $2.3 million and adjusted EBITDA was $121,151 compared to a loss of $18,747 a year earlier.
Since the start of 2021, Wishpond’s operational highlights include the two acquisitions in Invigo and PersistIQ, the completion of a bought deal offering for gross proceeds of $8.05 million including over-allotment, the launch of its Payments Product, Funnels Product and its Outbound Sales Solution by PerisistIQ.
On the outlook for the year, management said it expects revenue and profitability to accelerate over the second half of 2021 with growth coming from new product launches, a larger sales team and significant revenue contribution from new acquisitions.
“This represents the beginning of our journey as a publicly traded company with very ambitious plans to grow both organically and inorganically through strategic acquisitions, with the goal of expanding our product offerings and opening new markets and verticals,” said Wishpond CEO and chairperson Ali Tajskander in an April 29 press release.
Looking ahead, Sgro thinks Wishpond will generate 2021 and 2022 revenue of $14.4 million and $19.5 million, respectively, and 2021 and 2022 adjusted EBITDA of negative $0.3 million and $1.4 million, respectively.
The analyst estimates WISH to be trading at 3.5x 2022 EV/revenue, which Sgro sees as a discount to its peers.
“Our view is that an EBITDA break-even SaaS platform delivering 30 per cent-plus organic growth deserves to trade closer to relevant Canadian peers at 12.3x or US martech vendors at 9.9x. We attribute this discount to Wishpond’s relatively smaller size and lack of familiarity in the Canadian investment landscape. We believe execution will close this gap over time,” Sgro wrote.
At press time, Sgro’s $2.50 target represented a projected one-year return of 63 per cent.
Disclosure: Wishpond Technologies is an annual sponsor of Cantech Letter