Echelon Capital Markets analyst Rob Goff is a bit more cautious in regards to AcuityAds Holdings (AcuityAds Stock Quote, Chart, News, Analysts, Financials TSX:AT), maintaining a “Speculative Buy” rating and lowering his target price from $9/share to $7/share for a projected return of 188 per cent in his latest update to clients on Friday.
Toronto-based AcuityAds provides real-time bidding solutions for digital advertising and 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 the company released its first quarter financial results for the 2022 fiscal year.
“With the focus on momentum exiting the year and ahead of clarity on prospective acquisitions, we are moving to tougher valuations while also considering the downward recalibration of technology valuations,” Goff said. “Despite our near-term considerations, we remain resolutely bullish towards AT’s mid- to longer-term outlook.”
AcuityAds’ financial quarter was headlined by revenue of $23.8 million for a sequential drop of 13 per cent and a year-over-year decrease of 13.2 per cent, with the figure coming in as a slight miss to the $25.6 million Goff projected, as well as missing in relation to the $25.5 million consensus estimate.
On the margins, AcuityAds reported gross profit of $11.9 million for a 50 per cent margin to slightly miss on the Echelon forecast of $13 million and a 50.9 per cent margin, as well as in relation to the consensus estimate of $13 million and a 51 per cent margin. Meanwhile, the adjusted EBITDA barely broke even at $0.2 million for a 0.7 per cent margin, missing in relation to the $1.2 million Echelon estimate with a 4.7 per cent margin, as well as the consensus estimate of $0.9 million and a 3.4 per cent margin.
“Looking ahead in 2022, we remain committed to supporting illumin’s long-term success through strategic investments in R&D, sales and marketing,” said Tal Hayek, Co-Founder and Chief Executive Officer of AcuityAds in the company’s May 12 press release. “We have already begun to see benefits from these strategic investments following the quarter end, including positive customer feedback and increased illumin sales momentum. We anticipate seeing further benefits from these initiatives throughout the course of 2022, particularly in the second half of the year. Additionally, we continue to have confidence in our prospects and generating long-term value for our shareholders.”
The release of the financial results has prompted Goff to revise his financial projections for the rest of 2022, lowering his revenue target from $150.1 million to $141.5 million for a potential year-over-year increase of 16 per cent. Looking ahead to 2023, Goff maintains a $170.9 million revenue forecast for a potential year-over-year increase of 21 per cent.
From a valuation perspective, Goff forecasts a dramatic drop in the company’s EV/Revenue multiple from the reported 1x in 2021 to a projected 0.3x in 2022, then to a projected 0.1x in 2023.
Meanwhile, Goff maintains a 51 per cent gross margin for 2022, though the gross profit projection drops from $76.5 million to $72 million. For 2023, Goff forecasts a gross profit increase to $85 million, though the margin slightly tightens to a projected 50 per cent. Accordingly, Goff projects an EV/Gross Profit multiple of 0.5x in 2022, then 0.2x in 2023.
Goff also made changes to his adjusted EBITDA forecast, reducing his 2022 forecast from $21.9 million and a margin of 15 per cent to $19 million and a 13 per cent margin, increasing to a projected $27.5 million and a 16 per cent margin in 2023. Goff also forecasts a significant drop in the company’s EV/EBITDA multiple from 6.1x in 2021 to a projected 2.1x in 2022, then to a projected 0.7x in 2023.
“We are taking a more conservative stance on revenues given the challenges of hiring sales people in current markets and AT’s focus on top producers,” Goff said. “We further allowed for economic and political uncertainty as referenced by management on the call. We could see a scenario of lower revenues and higher EBITDA where the cadence of growth investment outlays is governed by talent availability.”
Looking ahead, Goff believes the market is discounting cash ahead of anticipated acquisitions, and as such, Goff believes acquisitions will narrow valuation discounts.
“We see management exercising acquisition discipline where its platform capabilities and internal technology hold the potential to shift LTM valuation parameters to significantly lower proforma valuations,” Goff said. “Management clearly communicates the value discipline it has exercised in not using its cash balances to execute an acquisition despite numerous candidates.”
AcuityAds’ stock price has dropped by 39.9 per cent since the start of 2022, falling off after starting the year trading at $4.84/share. The company’s stock dropped to a 2022 low of $2.43/share on Thursday, though it has since rebounded with a 19.8 per cent increase.
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