Eight Capital drops target on MediaValet, keeps “Buy”

Christian Sgro of Eight Capital is slightly more nervous regarding MediaValet (MediaValet Stock Quote, Chart, News TSXV:MVP). Though he ultimately maintained a “Buy” rating in his latest analysis from Friday, his target price has dropped from $3.50/share to $2.50/share for an implied return of 75 per cent.

Founded as VRX Worldwide in 2014 and headquartered in Vancouver, MediaValet is a SaaS provider of digital asset management (DAM) solutions to mid to large enterprises globally. The company offers its Enterprise DAM platform to help create, find, work with, manage, and share digital assets; a CreativeSPACES collaboration tool, the core DAM, and other media creation software; and other modules for advanced various intelligence development tools.

Sgro’s updated outlook comes after MediaValet released its fourth quarter financial results, which he noted to be in-line with expectations, though his target drop comes from multiple contraction from 10.5x 2022 EV/Revenue to 5.5x 2023 EV/Revenue projections, which compares to high-growth Canadian and US SaaS peers at 5.5x and 8.1x, respectively.

“We continue to like MediaValet's SaaS profile and market opportunity, and believe that execution through the NTM will be potentially met with a re-rating to the mid-point of Canadian SaaS peers,” Sgro said.

MediaValet’s quarterly report was headlined by $2.6 million in revenue, matching the consensus estimate and essentially being in line with the Eight Capital target of $2.5 million. The report represents nine per cent sequential growth, as well as a 22 per cent year-over-year increase. Importantly, 93 per cent of the company’s revenue in the quarter was recurring, and the company also reported 100 per cent revenue retention.

Meanwhile, MediaValet’s ARR experienced 25 per cent sequential growth to $10.8 million in the quarter, with that figure jumping to 32 per cent when accounting for constant currency.

“Looking ahead, the company expects this growth rate to serve as a low water mark as the S&M team hits stride, churn normalizes, and customer engagement increases post the pandemic,” Sgro said. “The company near-doubled its headcount in 2021 to 102 team members, validating previous commentary that this was an investment year.”

The company’s gross margin came in at 81.8 per cent, while the adjusted EBITDA loss of $2.6 million sat
comfortably between the Eight Capital estimate of a $2.4 million loss and the consensus projection of a $2.9 million loss.

“I’m extremely proud of our team for rising above the headwinds of 2021 to increase our market share, growing our ARR faster than that of the overall DAM market, and by a healthy margin at that,” said David MacLaren,

Founder and CEO of MediaValet in the company’s March 10 press release. “This is a testament to our
innovative approach to DAM, as well as our commitment to our customers’ ongoing success. By the end of Q4’21, we largely completed our operational expansion, ensuring we continue to be well positioned to outpace the rapid growth expected of the global DAM industry over the next five years.

With the release of the new results, Sgro has modified some of his financial projections for the company, in particular for 2022. After the company finished 2021 with $9.3 million in revenue, Sgro lowered his expectation for 2022 from $13.1 million to $12.7 million, with the new figure still implying a year-over-year increase of 36.1 per cent. Conversely, Sgro raised his 2023 revenue projection from $16.9 million to $17.2 million, with the new figure bringing about a potential year-over-year increase of 35.4 per cent.

In terms of valuation, Sgro projects the company’s EV/Revenue multiple to drop from the reported 5.2x in 2021 to a projected 3.8x in 2022, then to a projected 2.8x in 2023.

Meanwhile, after MediaValet finished 2021 with an $8.3 million loss in adjusted EBITDA, Sgro continues to make negative forecasts in the category, as he projects a $9.3 million loss in 2022 (previously projected at a $7.6 million loss), while the 2023 projection has also changed from a $5.4 million loss to a $6.7 million loss.

Sgro also forecasts some movement in the company’s gross margin, as he projects an increase from 82.6 per cent to 82.8 per cent in 2022, followed by a slight reduction from 83.6 per cent to 83.2 per cent in 2023.

MediaValet’s stock price has dropped off by 38.8 per cent over the last 12 months, with the loss since the start of 2022 coming in at 26.8 per cent. The company’s stock price has declined steadily since hitting a 52-week high of $2.80/share on November 4, producing a 50 per cent loss as it dropped to a 52-week low of $1.40/share on March 9.