Scotiabank analyst Jeff Fan was underwhelmed by the recent quarterly results from Canadian media tech company BBTV Holdings (BBTV Holdings Stock Quote, Chart, News, Analysts, Financials TSX:BBTV). But Fan nonetheless retained a “Sector Outperform” rating on the stock in an update to clients on May 17 and paired it with a reiterated $10/share target price, which at the time of publication represented a projected one-year return of 440.5 per cent.
Vancouver-based BBTV provides end-to-end online content management and monetization services to content creators who run the gamut from individual creators on platforms like Instagram and TikTok to corporations like the NBA.
Fan’s findings arrived after BBTV released its first quarter financial results for the 2022 fiscal year, which were headlined by an EPS loss of $0.60/share, which missed in relation to the Scotiabank estimate of a $0.17/share loss and the consensus expectation of a $0.39/share loss, with Fan saying the earnings miss was mainly due to higher operating cost.
However, some of that operating cost was offset by positives in the company’s Plus Solutions revenue stream.
“Q1 2022 results show continued strong growth in higher margin Plus Solutions,” said Shahrzad Rafati, Chairperson and CEO of BBTV in a May 16 press release. “Plus Solutions Revenue grew by 69 per cent, led by strong uptake of Content Management solutions by major media brands during the quarter. Our investments in Plus Solutions are beginning to show up in our performance, where revenue from all our major Plus Solutions categories including Content Management, Direct Advertising Sales, and Mobile Gaming Apps, have all grown by over 40 per cent in the quarter.”
Overall, BBTV reported $98.8 million in revenue for the quarter to present a seven per cent year-over-year decrease, which also missed in relation to the Scotiabank estimate of $102 million and the consensus expectation of $105 million; Fan attributed the miss to the decrease in Base revenue growth ($86 million, down 13 per cent year-over-year and missing the $90 million Scotiabank estimate, and the $94 million consensus forecast), partly offset by higher Plus revenue,
Fan put particular emphasis on decreases in Views (105 billion in the quarter, in line with Scotiabank estimates but down 8.7 per cent year-to-year) and RPMs ($0.82, down 4.7 per cent year-over-year and missing the $0.93 Scotiabank estimate), as a result of the consumers’ consumption patterns change accompanied by the restriction lift, and a lack of monetization on YouTube Shorts Content, which management believes is a significant opportunity of approximately $90 million based on current RPM.
On the margins, BBTV reported gross profit of $9.2 million to nestle itself between the consensus expectation of $9.1 million and the Scotiabank estimate of $9.3 million, while adjusted EBITDA came in at a $3.7 million loss (Scotiabank estimated a $1.7 million loss, consensus projected a $2.6 million loss) as a function of higher operating costs.
Subsequent to the end of the quarter, BBTV announced it had secured an agreement to provide content management solutions for League of Legends Champions Korea, the primary competition for League of Legends eSports in South Korea.
“Fan communities rally around great content, sharing and engaging with their favorite moments across a wide range of platforms. This creates a big opportunity for brands and media companies to not only capture and learn from fan engagement, but also drive new revenue in the process,” said Lewis Ball, Chief Strategy Officer, BBTV in an April 19 release. “Fan uploaded content is arguably the most important piece of the puzzle, as it presents a much more complete outlook on what content is performing across all corners of the digital landscape. We’re proud and excited to work alongside Riot Games Korea to provide our solutions for one of the premier esports titles on the planet, League of Legends.”
The agreement comes on the heels of BBTV signing new contracts with creators that bring millions of additional monthly views and 27.8 million organic subscribers to the platform, as well as signing a partnership agreement with ConsenSys, a leading Ethereum software company, to support BBTV’s development of Web3 NFT solutions for content creators.
With first quarter financial results now in the books, Fan forecasts 2022 revenue to come in at $490 million for a potential year-over-year increase of 2.7 per cent, with his EV/Revenue multiple projection remaining at 0.2x.
According to Fan, management believes that cash on hand is sufficient to meet its liquidity needs and there is no near-term need for additional capital requirement to support growth and debt repayment.
BBTV’s stock price has dropped by 44.5 per cent over the course of 2022, overcoming an early decline to reach a 2022 high of $3.40/share on March 25. However, it has declined by 51.2 per cent since then, and is presently trading at a 2022 low of $1.66/share.