AcuityAds has an upside of 195 per cent, Echelon says

Echelon Capital Markets analyst Rob Goff is significantly more calculated in his view of AcuityAds Holdings (AcuityAds Stock Quote, Chart, News, Analysts, Financials TSX:AT), maintaining a “Speculative Buy” rating and target price of $9/share for a projected return of 195 per cent in his latest update to clients on Friday.

Founded in 2009 and headquartered in Toronto, AcuityAds provides real-time bidding solutions for digital advertising, 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 fourth quarter of 2021, along with its year-end figures.

All told, AcuityAds reported $36.8 million in revenue for the quarter, coming in ahead of the Echelon Capital Markets estimate of $36.5 million and the consensus target of $34.1 million. More than half the revenues turned to profit in the quarter at $19.1 million for an implied margin of 52 per cent, beating the Echelon estimate of 49.5 per cent, along with the consensus expectation of 51.5 per cent.

In addition, the company generated $5.9 million in adjusted EBITDA in the quarter, coming out in line with the Echelon Capital Markets projection of $5.9 million, but slightly below the consensus expectation of $6.1 million.

“We believe the gross margin outperformance is more important than the modest EBITDA margin underperformance versus consensus,” Goff said. “AT’s EBITDA margins are currently lowered by increased investments to build sales and expand illumin product capabilities.”

The company’s revenue came from a number of different places, with illumin revenue breaking eight figures at $10.2 million for 37 per cent sequential growth and a 28 per cent year-over-year increase to generate 28 per cent of the company’s revenue mix.

Meanwhile, though the numbers weren’t officially released, Goff believes the company came out of the quarter with approximately $2 million in CTV revenue, with the two units paired together expected to push $52 million in 2022, where an estimated $10 million could represent business moving from the legacy UI3 platform onto the user experience enhanced illumin – based on an estimated 20 per cent of illumin revenues being sourced from the migration of ‘legacy’ business.

“As we enter 2022, illumin continues to propel our growth while it fundamentally changes the world of advertising. Our success with illumin adoption, reinforced our actions to support its future growth by strategically investing in sales and marketing activities as well as R&D, enhanced organizational capability and our people,” said Tal Hayek, Co-Founder and CEO of AcuityAds in a March 10 press release. “Complementing this, we are also seeing encouraging signs of recovery in COVID-affected industries such as travel, and leisure and entertainment, which represents further potential upside.”

With year-end figures now officially public, AcuityAds finished 2021 with $122 million in revenue, effectively in line with the Echelon Capital Markets projection of $121.7 million. Looking ahead to 2022, Goff’s revenue forecast remains at $150.1 million for a potential year-over-year increase of 23 per cent, while the $170.5 million projection for 2023 would mark a potential year-over-year increase of 14 per cent.

In terms of valuation, Goff forecasts the company’s EV/Revenue multiple to drop from 0.8x in 2021 to 0.7x in 2022, then to a projected 0.6x in 2023.

Meanwhile, after the company finished the year with $20.3 million in adjusted EBITDA for a 17 per cent margin, Goff foresees a bit of compression in 2022 at a 15 per cent margin with $21.9 million in adjusted EBITDA (previously $22.2 million). Looking ahead to 2023, Goff foresees another margin compression, this time to 13 per cent with $22.8 million in adjusted EBITDA.

From a valuation standpoint, Goff foresees a subtle decrease in the EV/EBITDA margin from 5.1x in 2021 to 4.7x in 2022, then to a projected 4.5x in 2023.

“We see the potential for revenue outperformance as management indicated that guidance does not reflect a significant recovery in areas impacted from COVID-19 or any larger illumin clients (large nationals where sales cycles are longer but illumin is being considered),” Goff said. “Furthermore, management noted early but encouraging signs of a recovery in COVID-sensitive areas that previously represented 25 to 30 per cent of sales, and were probably less than five per cent in 2021.”

The outlook on AcuityAds’ share price has been significantly altered over the last 12 months as it produced a loss of 81.7 per cent, further punctuated by a 29.8 per cent loss since the start of 2022. St. Patrick’s Day of 2021 saw Irish eyes smile on AcuityAds for a 52-week high of $18.54/share, though it has steadily declined to the point of a 52-week low of $2.76/share on March 11.