Looking at the company’s latest quarterly results, Kris Thompson of PI Financial believes Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH) has a boatload of potential. Thompson maintained a “Buy” rating and $2.75/share target price for a one-year projected return of 257.1 per cent in an update to clients on Friday.
Vancouver-based Wishpond Technologies provides a platform offering companies capabilities in marketing, promotion, lead generation, sales automation, ad management, referral marketing and sales conversion. Thompson’s latest comes on the heels of Wishpond releasing its first quarter financial results for the 2022 fiscal year, which Thompson deemed to be a positive for the company and stock.
Wishpond’s financial quarter was headlined by total revenue of $4.1 million, which was in line with the PI Financial projection at $4.1 million and the consensus projection at $4.2 million. The report represented a softer quarter for Wishpond in the form of a 13 per cent sequential decline due to seasonality, though it was still a 41 per cent year-over-year improvement.
In the quarterly report, Wishpond said it set a record for monthly recurring revenue immediately after the end of the reporting period, even without the inclusion of its most recent acquisitions of Winback and Viral Loops.
“The Company’s growth has not been materially impacted by the significant supply chain disruptions, inflation and other macroeconomic challenges currently affecting other industries around the globe,” said Ali Tajskandar, Wishpond’s Chairman and CEO in the company’s May 26 press release. “Wishpond has a very diversified customer base of small-medium sized businesses and the demand for our products and services remains robust with organic growth over the past year largely due to investments we have made in our sales engine.”
On the margins, Wishpond reported first quarter gross profit of $2.5 million for a 62.2 per cent gross margin, which was a slight miss in relation to the PI Financial estimate of $2.8 million and a 68 per cent margin, which was matched by the consensus. The margin was also identical to the opening quarter of 2021, though it was down from the 68.2 per cent margin reported in the previous quarter.
Meanwhile, the company reported an adjusted EBITDA loss of $0.4 million to miss against the PI Financial projection of a $0.2 million loss, which Thompson said was strictly due to lower gross margin reflecting seasonally lower revenue that did not absorb fixed headcount related to the fully-managed segment.
Overall, Wishpond Technologies exited the first quarter of 2022 with $4.5 million in cash available, along with $6 million in credit. In terms of personnel, Wishpond’s headcount grew by 30 to reach 265 in the quarter, with the sales team adding 10 people to reach 35 ahead of a year-end goal of 45.
“May is on track to exceed April’s MRR, which is a great indication that Q2/22 results will deliver record revenue, even above the seasonally strong Q4/21 period that delivered a big surprise beat,” Thompson said.
“The Company is scrutinizing all discretionary expenditures, optimizing operations for growth and cost-saving synergies, and expects to be cash flow positive in H2/22,” Thompson wrote.
With first quarter financial results now released, Thompson made minimal changes to his future financial projections, lowering his 2022 revenue target from $21.9 million to $21.8 million for a potential year-over-year increase of 45.3 per cent. Looking ahead to 2023, Thompson slightly lowered his projection from $28.2 million to $28 million, suggesting a year-over-year increase of 28.4 per cent.
From a valuation perspective, Thompson forecasts the company’s EV/Revenue multiple to drop from the reported 2.4x in 2021 to a projected 1.6x in 2022, then dropping again to a projected 1.3x in 2023.
Meanwhile, outside of rounding, Thompson maintained an adjusted EBITDA projection of $0.9 million for a four per cent margin, while his 2023 projection calls for $1.8 million in adjusted EBITDA, representing a 6.8 per cent margin.
In terms of valuation, Thompson introduces an EV/adjusted EBITDA multiple of 40.2x in 2022, which he forecasts to drop to 19.4x in 2023.
Overall, Thompson believes Wishpond to be at an attractive entry point for potential investors, noting his belief that the stock is presently oversold.
“Our DCF valuation suggests a fair value of $2.75 per share,” Thompson said. “On a multiples basis, our C$2.75 target price equates to an EV/Sales of 6.3x and 4.9x EV/Sales on our 2022 and 2023 estimates, respectively.”
Disclosure: Wishpond Technologies is an annual sponsor of Cantech Letter.
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