Beacon Securities analyst Gabriel Leung continues to look favourably upon Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH), maintaining his “Buy” rating and target price of $3.75/share for a projected return of 257 per cent in an update to clients on Monday.
Founded in 2009 and headquartered in Vancouver, Wishpond Technologies is a SaaS-based provider of marketing-focused online business solutions, with its product suite offering customers marketing, promotion, lead generation and sales conversion capabilities.
Leung’s latest analysis comes after Wishpond announced that it had completed the acquisition of London-based Viral Loops Limited, effective as of April 1.
“Aside from its standalone growth, we believe there will be a good opportunity for Wishpond to upsell Viral Loops into its existing 3,000+ customer base,” Leung said.
Viral Loops enables businesses to launch, monitor and manage referral campaigns to create viral demand for their products, as its platform provides customers with customizable templates for referral marketing campaigns where customers can refer their networks in exchange for rewards.
“Viral Loops’ technology tracks and manages the effectiveness and results of the referral program and enables customers to manage the distribution of the rewards and discounts arising from the campaign,” Leung said.
All told, Wishpond is paying US$2.3 million for Viral Loops, which includes $1.38 million in cash upfront, and the rest coming in a performance earnout expected to come in at approximately $920,000, payable quarterly in cash and/or stock at Wishpond’s discretion. With the terms of the acquisition in place, Leung notes that Wishpond is paying an approximate multiple of 2.9x sales and 19.2x its EBITDA.
Leung notes that Viral Loops’ growth is similar to that of Wishpond, having generated US$800,000 in revenue in the 2021 calendar year, with EBITDA greater than 15 per cent from its customer base numbering greater than 700.
“Viral Loops has built a company with tremendous brand recognition in the industry and has demonstrated consistent, strong revenue and EBITDA growth,” said Ali Tajskandar, Chairman and CEO of Wishpond Technologies in the company’s April 4 press release. “Besides growing Viral Loops as a stand-alone business, we believe there are tremendous cross-sell opportunities for offering referral marketing solutions to Wishpond’s existing customer base of over 3,000 small to medium sized businesses. We are thrilled to welcome the Viral Loops team to the growing Wishpond family.”
On a pro forma basis, Leung estimates Wishpond has approximately $5.3 million in cash available, along with an unused $6 million credit facility.
With fourth quarter financial results not expected until late April (Leung forecasts $4.2 million in revenue and $201,000 in adjusted EBITDA), Leung continues to hold projections in place for 2021, forecasting $14.3 million in revenue for an 81.7 per cent year-over-year increase. Looking ahead to 2022, Leung forecasts a jump to $21.5 million in revenue for a potential year-over-year increase of 49.9 per cent, with a 20 per cent year-over-year increase to $25.8 million projected for 2023.
Of those revenue figures, Leung forecasts a 67.8 per cent gross margin in 2021 for a $9.7 million gross profit projection, followed by margin estimates of 69.2 per cent in 2022 ($14.9 million) and 2023 ($17.8 million).
From a valuation perspective, Leung forecasts the company’s EV/Net Revenue multiple to drop from 3.4x in 2021 to a projected 2.3x in 2022, then to a projected 1.9x in 2023, which presents a significant discount to the 6.6x peer group average for US comparables, and the 6.7x peer group average for Canadian company comparables.
Meanwhile, Leung forecasts Wishpond to post an adjusted EBITDA loss of $0.2 million in 2021 before a positive turn in 2022 at $1.1 million for a projected margin of five per cent, then widening to a projected 6.4 per cent margin with adjusted EBITDA of $1.65 million in 2023.
In terms of valuation, Leung introduces an EV/adjusted EBITDA multiple in 2022 at 45.4x, then dropping to a projected 29.9x in 2023.
However, despite the positive progress, Leung continues to forecast net income losses of $4.6 million in 2021, $2.2 million in 2022, and $1.7 million in 2023.
“We continue to review the stock as representing a compelling investment opportunity given the strong macro and company fundamentals, including its clean balance sheet, strong track record of M&A and organic growth target of 30 to 40 per cent per year,” Leung said.
Disclosure: Wishpond Technologies is an annual sponsor of Cantech Letter.
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