AcuityAds has an upside of 102 per cent, says Echelon

Echelon Capital Markets analyst Rob Goff has cooled his view of AcuityAds Holdings (AcuityAds Stock Quote, Chart, News, Analysts, Financials TSX:AT), lowering his target price to $23.00/share from $33.00/share while maintaining a “Speculative Buy” rating in his latest update to clients on Tuesday.

Founded in 2009 and headquartered in Toronto, AcuityAds provides real-time bidding solutions for digital advertising and has a demand side platform (DSP) for marketers and advertisers to run automated, targeted and fully customizable campaigns powered by illumin, its new automation platform.

Goff’s updated analysis comes after AcuityAds released its financial results for the second quarter of 2021.

“Reported results supported modest positive forecast revisions as we are leaving our H221 forecasts unchanged despite carrying the ongoing FX burden,” Goff said. “We were optimistic that we would be able to take more significant positive moves with the quarter; however, FX headwinds have likely moderated most upwards considerations for ourselves and others.”

AcuityAds reported revenues of $30.3 million in the second quarter for a 54.9 per cent year-over-year increase compared to the second quarter of 2020, slightly outpacing both Goff and the consensus projections of $29.8 million in revenues. The company also reported $15.8 million in gross profits for the quarter for a 74 per cent year-over-year increase, beating the $15 million projections set out by both Goff and the consensus.

Meanwhile, AcuityAds’ quarterly EBITDA also beat expectations, with the company reporting $5.4 million and a 163.1 per cent year-over-year increase compared to the second quarter of 2020, outpacing the consensus projection of $4.46 million and Goff’s projection of $5.1 million.

“We are very pleased to report 55 per cent revenue growth and 154 per cent Adjusted EBITDA growth on a year-over-year basis for our second quarter. We saw strength throughout our business including some initial signs of recovery in COVID-affected industries such as travel, leisure and entertainment. This outstanding performance would not have been possible without the hard work of all our team members and I want to thank them for their efforts,” said Tal Hayek, Co-Founder and CEO of AcuityAds in the company’s August 10 press release. “As we look to the third quarter, based on our current momentum, we expect to generate solid year-over-year revenue and EBITDA growth despite any normal seasonality.”

The second quarter results prompted some changes to Goff’s financial metrics and valuation data, as he now projects $134.9 million in revenues compared to his original estimation of $134.5 million, with EBITDA now forecast to be $23.5 million instead of $23.2 million, while Goff estimates a minimal droop in n EPS to $0.38/share instead of $0.39/share.

Goff believes AcuityAds to be ahead of schedule, forecasting a drop in the EV/Gross Profit multiple from the reported 11.9x in 2020 to 9.3x in 2021, with a forecast of 7.8x for 2022, beating the targets of 30.4x for 2021 and 25.4x for 2022, as well as peer estimations of 58.1x for 2021 and 36.8x in 2022.

The EV/EBITDA multiple follows a similar path, with Goff forecasting a drop from 40.7x in 2020 to 27.3x in 2021 before dipping to 21.2x than 2022. Again, Goff’s projections are most optimistic than the target multiples of 89.2x for 2021 and 69.3 for 2022, as well as peer estimations of 71.8x in 2021 and 46.7x in 2022.

However, on account of ongoing market concerns towards the sector’s exposure to more restrictive consumer profiling, Goff has moved to adopt more conservative valuations, though still supporting strong returns.

“We continue to see upside beyond our revised PT,” he said. “We feel the company’s exposure to illumin and CTV represent significant catalysts that will increasingly overweigh lingering concerns towards revised consumer tracking.”

AcuityAds Holdings closed Thursday trading at C$11.26/share on the Toronto Stock Exchange, a 41 cent drop from its Wednesday closing figure. Overall, AcuityAds stock prices have fallen 12.58 per cent (C$1.62/share) through the year to date. At the time of publication, Goff’s new $23.00 target represented a projected 12-month return of 101.6 per cent.

The company’s work and culture haven’t gone unnoticed of late, as AcuityAds was recently certified as a Great Place to Work for the fourth straight year by the Great Place to Work Institute of Canada. In addition, AcuityAds was named to AdExchanger’s Programmatic Power Players List for 2021 on the strength of its illumin platform, which has gained 11 clients since the end of the first quarter while gaining faster than expected traction with other agencies.

AcuityAds also completed a US$57.5 million initial public offering in the United States and Canada on June 14, beating the initial $50 million valuation and bringing the company’s cash to $94.3 million at the end of the quarter.