Sabio Holdings is a compelling Buy, says Beacon Securities

The first glimpses of fourth quarter earnings look good from ad tech software company Sabio Holdings (Sabio Holdings Stock Quote, Charts, News, Analysts, Financials TSXV:SBIO). That’s according to Beacon Securities analyst Gabriel Leung who delivered a corporate update on Tuesday where he maintained his “Buy” rating and C$3.25 target price for Sabio.

Debuting on the Venture Exchange in late November, Sabio is a Los Angeles-based software and services company with reach, targeting and analytics solutions for mobile and connected TV (CTV) advertisers. 

In a Tuesday press release, Sabio announced preliminary numbers for its Q4 2021 including revenue expected in the range of $9.6 million to $10.4 million, with CTV sales expected to account for 45 to 50 per cent of the total. That would put the full year revenue at between $23.2 and $24.0 million, up over 75 per cent compared to 2020, while the fourth quarter projection would be up over 77 per cent compared to last year’s Q4. Gross margin for the year is expected to come in at approx. 60 per cent, while Adjusted EBITDA is expected to be positive for the second year in a row. (All figures in US dollars except where noted otherwise.) 

Sabio said its CTV sales numbers were significant to the company’s development in that for the month of December, CTV revenue is expected to exceed mobile sales for the first time in the company’s history. 

“Fortune 500 U.S. brands are increasingly relying on Sabio’s proprietary streaming TV and mobile DSP along with its AppScience analytics platforms to effectively and efficiently reach cable cutting consumers in the United States,” said CEO Aziz Rahimtoola in a press release.

”Sabio’s full-year results benefited from the unique positioning of our mobile data powered CTV advertisement platform. We believe growth in our CTV revenues is only in the early innings and based on industry research [is] pacing well ahead of the high growth of the overall CTV market,” Rahimtoola said.

Leung said the projected numbers would be above his estimates, with the $23.2-$24.0 million in 2021 revenue looking better than his $22 million call while management’s Q4 forecast of $9.6-$10.4 million would also be better than Leung’s $8.4 million. The analyst noted that the forecasted full year revenue would represent at the midpoint year-over-year growth of 79 per cent, all of it organic. 

“In our opinion, the company’s preliminary Q4 results represent a very positive data point, which highlights the strong momentum in its CTV business,” Leung wrote.

“We believe Sabio’s compelling proprietary streaming TV and mobile DSP, along with its AppScience analytics platform will continue to draw new customers and increased spending from existing customers who are looking to effectively reach customers via the emerging CTV medium,” he said.

Leung said he was keeping his estimates as is pending the release of complete fourth quarter results, which Sabio said are coming in April) and the analyst said his price target comes from a 7x multiple on EV/Net Sales (i.e, gross profit).

The full numbers from Leung call for $22.0 million in 2021 revenue and $1.4 million in EBITDA while 2022 is projected at $30.0 million and $2.1 million. Gross profit is expected to go from $7.9 million in 2020 to $13.3 million in 2021 to $18.0 million in 2022.

“In our opinion, the stock remains a compelling small cap technology opportunity given the strong company/macro fundamentals, along with its current valuation of 2.6x EV/Net Sales versus peers at 6.1x despite Sabio’s 2-year revenue CAGR of 51 per cent (all organic) versus peers at 32 per cent,” Leung wrote. 

Since it began trading on November 26 of last year, SBIO has dropped about 31 per cent. At the time of publication, Leung’s C$3.25 target represented a projected one-year return of 158 per cent.

Commenting further on Sabio’s CTV segment, Rahimtoola said the company’s development in that direction is “a function of early focus and investments in developing our streaming and analytics capabilities, along with 5G bandwidth improvements.”

“In addition, our 2021 increased presence in New York, by adding personnel along with the establishment of a new office, has catapulted the New York region into our fastest growing market. All of the above is leading to increased revenue visibility for both our Sabio and AppScience businesses,” Rahimtoola said.

Earlier this month, Sabio announced a new addition to its Board of Directors in Jennifer Cabalquinto, a 25-year industry veteran currently in the position of CFO at 2K and previously having served as CFO and Special Advisor of NBA franchise the Golden State Warriors. 

“As someone who has had first-hand experience with how fragmented the media and entertainment space is, I was impressed by how Sabio and AppScience’s solutions use cross screen media and analytics to improve advertiser and brand performance,” Cabalquinto said in a January 13 press release.

Disclosure: Sabio Holdings is an annual sponsor of Cantech Letter.