Gabriel Leung of Beacon Securities is positive on the new acquisition by Sabio Holdings. (Sabio Holdings Stock Quote, Chart, News, Analysts, Financials TSXV:SBIO). Leung maintained a “Buy” rating and $3.25/share target price for a projected return of 158 per cent in an update to clients on Tuesday.
Headquartered in Los Angeles, Sabio provides digital advertising campaigns and services as well as rich analytics for brand marketers and agencies, with a particular focus on the Connected TV (CTV) market.
Leung’s updated analysis and target raise come after Sabio announced its intent to acquire Vidillion, an American Connected TV supply side platform.
“The acquisition is expected to further expand Sabio’s access to premium CTV inventory (Sabio’s advertiser customers can get a first look at Vidillion’s CTV impressions), which could help to boost gross margins,” Leung said. “When combined with Sabio’s Demand Side Platform (DSP) offering, the company has transformed into one of the first full-stack CTV solutions for marketers and suppliers.”
The transaction, which Leung expects to close in the first quarter of 2022 comes at a value of US$3 million, which includes US$1.75 million worth of shares and the rest coming in cash. With Vidillion having generated US$2 million in revenue in the 2021 calendar year, the transaction implies a valuation multiple of 1.5x its net sales, a discount to the 2.5x multiple Sabio generates.
Vidillion has established a number of key partnerships in the publishing industry, with access to exclusive inventory across a diverse set of content verticals helping publishers monetize their content with advertising. Vidillion currently streams more than 1,200 TV channels and 10,000 movies and video clips to about 120 countries via the Internet to Amazon FireTV, AppleTV, Roku and smart TVs.
Sabio already had a relationship with Vidillion through its tools for ad break optimization, server-side ad insertion (SSAI), content recognition, and dynamic ad insertion (DAI) with demand side partner integrations to help publishers find new ways to monetize their content.
“We have been working closely with Vidillion for over a year with a shared belief that consumers, content providers, and brands deserve a better and more accountable CTV experience,” said Aziz Rahimtoola, CEO and co-founder of Sabio in the company’s February 22 press release. “The versatility, scalability, and granular level of insights of combining our existing AppScience’s analytics and Sabio’s proprietary Demand-Side Platform (DSP) with Vidillion’s publisher level data and monetization capabilities is expected to enhance our current CTV offering, making it one of the first full-stack CTV solution for marketers and suppliers.”
Leung projects solid growth for Sabio across the board in his financial projections, beginning with a revenue projection of $22 million in 2021 for potential year-over-year growth of 66.7 per cent, followed by a projected jump to $30 million in 2022, marking a potential year-over-year increase of 36.4 per cent.
Leung sees Sabio’s EBITDA dipping from the reported $1.7 million (12.9 per cent margin) in 2020 to a projected $1.4 million (6.4 per cent margin) in 2021, with a slight increase to a projected $2.1 million (seven per cent margin) in 2022.
With Leung modelling the gross margin at 60 per cent moving forward, his real number projections increase from $7.9 million in 2020 to a projected $13.3 million in 2021, and a projected $18 million in 2022.
From a valuation perspective, Leung projects the EV/gross profit multiple to drop from the 6x reported in 2020 to a projected 3.6x in 2021, then to a projected 2.6x in 2022. Meanwhile, the EV/EBITDA multiple is projected to increase from the reported 28.5x in 2020 to 34.8x in 2021, then falling to 22.3x in 2022.
In terms of comparables in the North American ad tech space, Leung models Sabio’s EV/net sales multiple dropping from 5.9x in 2020 to 3.5x in 2021, then to 2.6x in 2022 to outpace the 6.2x average from the comparable peer group.
Overall, Leung views the Vidillion transaction as a net positive for Sabio going forward.
“In our opinion, the ability to offer both DSP and SSP services puts Sabio in an advantageous position relative to its peers and could help to augment its already impressive growth profile in the CTV sector,” Leung said.
Disclosure: Sabio Holdings is an annual sponsor of Cantech Letter.