AcuityAds is still a work in progress, Brian Madden says

Had enough yet of AcuityAds? (AcuityAds Stock Quote, Charts, News, Analysts, Financials TSX:AT) Last year, the stock went white hot last year and ended up at over 20x its value, going from a buck and change to start off 2020 to $32 when it was all said and done in February of this year.

And done like dinner it was. AcuityAds has been falling ever since and is now under the $5.00 mark, still a handsome return for those who got in early but a drastic drop nonetheless.

Portfolio manager Brian Madden says AcuityAds, which provides digital advertising services and solutions for companies and the marketing teams, seems to have been the victim of a retail investor pile-on and the stock is still feeling the effects. As for the company, Madden is on the sidelines for now.

“AcuityAds is not a household name. My suspicion is became very much a favourite name among the meme stock crowd last year and early this year,” says Madden, senior vice president at Goodreid Investment Counsel, who spoke on BNN Bloomberg on Thursday. “The stock went from I think about 75 cents up north of $30 over the last two years and has round tripped most of the way back down.”

“It’s not a company that we own and it’s not one that we’d likely buy, but for investors with more risk tolerance for earlier stage companies this one could be interesting,” he said.

“They’ve created an ad buying platform using machine learning and artificial intelligence and it’s deployed on a do-it-for-you basis. Or a do-it-yourself basis to buyers of advertising. It’s omni-channel, so digital and over-the-top and traditional media can provide very targeted impressions and so they cater to large enterprises but also the mid-market and even right down to the Mom n’ Pops like your corner pizza store and so on,” Madden said.

A still-scaling business, Toronto-based AcuityAds had a rough pandemic-influenced 2020 where much of its business in the travel, leisure and entertainment sectors took major hits. The company’s 2020 revenue was $104.9 million, which was down 12 per cent compared to 2019 they were still able to increase its earnings, landing at $15.8 million for the year compared to $9.7 million for the previous year and Acuity saw growth in its Connected TV segment which almost tripled in 2020.

This year saw more customer demand for Acuity’s illumin platform for digital advertisers and the company brought in new contracts. Meanwhile, Acuity starting trading on the NASDAQ in June, closing on a US$57.5-million US IPO, and has begun opening up its business to newer sectors like pharma, tech, automotive and DTC brands.

The company delivered its third quarter earnings last month, posting overall revenue up 5.4 per cent but showing illumin revenue up 42 per cent sequentially to $7.4 million, making up a larger chunk of AT’s topline.

“Since the launch of illumin only one year ago, the Company has already seen cumulative revenue of $17.3 million from this innovative software offering,” said Tal Hayek, Co-Founder and CEO, in a press release. 

“We also saw further signs of recovery this quarter in COVID-affected industries such as travel, leisure and entertainment. In addition, the Company generated very strong operating cash flow, which further strengthened our balance sheet. I want to once again thank all of our team members for their hard work and dedication without which this performance would not have been possible,” he said.

“As we look to the fourth quarter, based on our current pipeline, we expect to generate year-over-year total revenue growth and strong adjusted EBITDA,” Hayek said.

For Madden, there are good points to Acuity, including its turn to profitability and current growth trajectory.

“Acuity does have a pretty good revenue line at about $120 million in revenue this year. It actually makes money — it makes 15 or 20 cents per share and it trades at a modest multiple of 8x roughly enterprise value to EBITDA or operating profit and it’s growing quickly,” Madden said.

“My concern, I guess, would be that there are very few barriers to entry and certainly we know that other bigger players are trying to develop this sort of capability themselves, notably, Corus Entertainment has been doing something like this,” he said. “That said, these guys are getting some traction and are growing fundamentally.”

“I think down the road perhaps this could be a takeout target and somebody bigger buys it, so I’d put it in the speculative category. It’s not something that we would buy but among speculative investments this would be one that I think deserve a look for people with that kind of risk appetite,” Madden said. “It’s a pretty good business.”