Look for more M&A from Wishpond, says Beacon Securities

Beacon Securities analyst Gabriel Leung is hopeful about Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH), maintaining his “Buy” rating and target price of $3.50/share in an update to clients on August 26.

Founded in 2009 and headquartered in Vancouver, Wishpond Technologies is a SaaS-based provider of marketing-focused online business solutions, with its product suite offering customers marketing, promotion, lead generation and sales conversion capabilities.

Leung’s latest analysis comes after Wishpond reported its second quarter financial results, which Leung noted to be impressive in spite of headwinds the company faced. 

The company reported revenue of $3.23 million in the quarter, slightly below the Beacon Securities projection of $3.47 million, while still reporting quarter-to-quarter growth of 11.6 per cent and a year-over-year increase of 72.7 per cent, with a normalized gross margin of 67 per cent.

Wishpond’s Q2 report was the first to include a full quarter of contributions from recent acquisitions Invigo Media and PersistIQ, with Leung attributing the revenue shortfalls to a balance sheet adjustment relating to deferred revenue for PersistIQ, as well as a lower exchange rate in relation to the American dollar (the average USD/CAD exchange was $1.228 in the quarter compared to $1.386 last year).

The company’s adjusted EBITDA came in at a loss of $320,000 for the quarter, slightly below the Beacon Securities projection of a $213,000 loss.

“We are very pleased with the progress we have made with our first two acquisitions, Invigo and PersistIQ, which continue to perform well,” said Ali Tajskandar, Wishpond’s Chairman and CEO, in the company’s August 26 press release.

“During the second quarter we launched our Appointments product, which came from the Invigo acquisition, and the Outbound Sales Solution, which came from the PersistIQ acquisition.  We are beginning to witness the synergistic benefits of our acquisitions through cross selling the Company’s products and services across the different parts of the growing organization.  Our positive Q2 results and momentum position us for strong year-over-year growth in the back half of 2021,” Tajskandar said.

Wishpond was busy in the quarter, gaining approval in July to have its common shares deposited electronically with the Depository Trust Company after its shares began trading on OTCQB’s Venture Market in June, while the company also partnered with Stukent, a digital courseware provider, to introduce new real-world digital marketing and social media assignments with Wishpond’s technology on Stukent’s platform.

Since the end of the Q2, the company has announced the acquisition of ad management software solution provider Brax.io for US$2 million, with the expectation of an immediately accretive transaction for Wishpond to the tune of (SaaS) revenue of approximately US$1.5 million over the past 12 months, gross margins of 80 per cent and EBITDA margins exceeding 15 per cent. In addition, the company named Kevin Ho, who joined Wishpond in 2015 and was most recently the company’s Vice President of Marketing, as General Manager of Brax following the acquisition.

Leung’s financial estimates show solid growth potential for Wishpond, as he projects $13.6 million in revenue for the company in 2021 to mark a potential 72.2 per cent year-over-year increase, followed by another jump to a projected $18.5 million in 2023 for a potential 36 per cent year-over-year increase.

From an EBITDA perspective, Leung forecasts a negative EBITDA of $500,000 for 2021 after being positive by the same margin in 2020, but then expects a rebound to $1.9 million in positive EBITDA for 2022 for a projected 10.3 per cent margin.

Leung’s valuation estimates also show Wishpond’s attractiveness, as he forecasts the company’s EV/Sales multiple to drop from 7.9x in 2020 to a projected 4.6x in 2021, followed by another forecasted drop to 3.4x in 2022. Meanwhile, positive EBITDA in 2022 means the only EV/EBITDA multiple information available is for 2022, which Leung forecasts to be 33.6x.

On comps, Leung sees Wishpond’s 2021 and 2022 EV/Sales multiples of 4.6x and 3.4x, respectively, as matching up against the company’s Canadian peers at 17.3x and 13.3x, respectively, and its US comparables at 14.8x and 11.8x, respectively. The global average turns out to be 16.0x for 2021 and 12.6x for 2022.

“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 (we believe the company could close another one or two technology acquisitions during H2 2021),” he said.

After bottoming out at $1.05/share on August 18, Wishpond’s share price has risen by 37.1 per cent with a recent peak of $1.56/share on August 30. The stock remains down 31.8 per cent since January 1, with a high point of $2.38/share on January 20. At press time, Leung’s $3.50 target represented a projected one-year return of 176 per cent.