MediaValet is headed to $2.50, says Eight Capital

A strong quarter has Christian Sgro of Eight Capital holding the line on MediaValet (MediaValet Stock Quote, Chart, News TSXV:MVP). Sgro maintained a “Buy” rating and $2.50/share target price for an implied return of 82 per cent in an update to clients on Thursday.

Vancouver-based 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 analysis comes after MediaValet reported its first quarter financial results for the 2022 fiscal year, which Sgro noted to be strong.

“Success was well diversified across enterprise and SMB customers, with several large wins landing in the quarter,” Sgro said. “As pandemic headwinds abate, metrics like NRR and sales cycles are showing stable improvement.”

MediaValet’s quarterly report featured topline revenue of $2.8 million to match the Eight Capital estimate, while being in line with the consensus projection of $2.9 million. The figure also represented a 10 per cent sequential increase, along with a 30 per cent year-over-year increase.

The company also projected ARR at $12 million, representing a 33 per cent year-over-year increase (39 per cent on a constant currency basis) while also being an increase from its previously announced floor of $11.7 million.

Meanwhile, MediaValet reported an adjusted EBITDA loss of $2.6 million, matching the consensus estimate and being in line with the Eight Capital projection of a $2.5 million loss.

MediaValet also reported $2.3 million in gross profit for a margin of 82.7 per cent, coming in slightly ahead of the 81.6 per cent margin projected by the consensus.

The company closed the quarter with $4.1 million in cash available, along with access to a $7 million credit facility that can be flexed with continued ARR growth.

On its conference call, Sgro pointed out company’s management note of strength across the industry given that customers have re-evaluated their digital asset management needs after adding more digital content throughout the COVID-19 pandemic.

“While the overall economic climate remains uncertain, the underlying long-term market shift towards a digital-first strategy is accelerating faster than previously expected by industry analysts,” said David MacLaren, Founder and CEO of MediaValet in the company’s May 11 press release. “From our experience with hundreds of customers across a wide variety of industries and geographies, we strongly believe that all organizations must initiate a digital-first strategy today to stay competitive. While there are many components to a successful digital strategy, they all rely on high-value media, corporate and brand assets.”

The quarterly release prompted minimal revisions to Sgro’s financial projections. The analyst slightly raised his 2022 revenue target from $12.7 million to $12.9 million for a potential year-over-year increase of 38.3 per cent while increasing his 2023 forecast from $17.2 million to $17.3 million, suggesting a year-over-year increase of 33.9 per cent. Both the 2022 and 2023 figures are in line with the consensus projections of $12.8 million and $17.3 million, respectively.

In terms of valuation, Sgro forecasts the company’s EV/Revenue multiple to drop from the reported 5.4x in 2021 to a projected 3.9x in 2022, then drop to a projected 2.9x in 2023.

From an ARR perspective, Sgro raised his 2022 target from $14.6 million to $14.9 million for 37.9 per cent year-over-year growth, while his 2023 forecast is now set at $20.2 million for 35.5 per cent year-over-year growth.

Sgro also forecasts minimal movement in gross profit from $10.5 million to $10.7 million in 2022 for an implied margin of 83 per cent, while his 2023 forecast is now set at $14.4 million (previously $14.3 million) for an implied margin of 83.4 per cent.

Meanwhile, Sgro maintained his adjusted EBITDA loss projections for 2022 (a $9.3 million loss) and 2023 (a $6.7 million loss), respectively.

Going forward, Sgro has the company trading at a near 50 per cent discount compared to its high-growth SaaS peers (2.9x compared to 5.4x 2023 EV/Revenue), and Sgro believes MediaValet will continue unlocking productivity across the sales team to drive continued momentum.

“We continue to like MediaValet’s SaaS profile and market opportunity, and believe that execution through the NTM will likely be met with a valuation re-rating as the company navigates the operating profile to cash flow breakeven,” Sgro said. “Key risks to our target include liquidity risk, extended sales cycles, or increased churn.”

MediaValet’s stock price has tumbled to a 42.1 per cent loss since the start of 2022, peaking early at $2.17/share on January 5 before dropping off gradually since then, and is presently trading at $1.21/share, its lowest point of the year to date.