With quarterly results coming up, Paradigm Capital analyst Daniel Rosenberg says Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH) is one to own in the current market climate, giving the name a bullish “Buy” rating and target price of $3/share for a projected return of 426 per cent in an update to clients on Tuesday.
Founded in 2009 and headquartered in Vancouver, Wishpond Technologies provides an all-in-one suite of integrated digital marketing products focused on serving the small to mid-market.
Rosenberg’s newest report comes as a preview to Wishpond’s first quarter financial results for the 2022 fiscal year which are to be released on Thursday.
“We expect an in-line quarter with some impacts from seasonality and churn, as outlined by management last quarter,” Rosenberg said. “A recent announcement of record monthly recurring revenue in April 2022 suggests growth has rebounded. On the call, we will be looking for progress on the investment in sales, and some colour on revenue growth in the back half of the year.”
Ahead of the official release, Rosenberg is forecasting revenue to come in at $4.2 million for the quarter, which would represent a year-over-year increase of 44 per cent driven by organic growth and past M&A, namely its recent acquisitions of Brax.io and PersistIQ.
“Last quarter, management noted that seasonality and higher customer churn in Brax and PersistIQ would impact Q1/22 results but provided reassurance that churn is back to historical levels now,” Rosenberg said. “WISH’s recent press release noting record monthly recurring revenue in April 2022, along with a rebound in Brax’s ad management revenue confirms management’s outlook.”
On the margins, Rosenberg forecasts a 53 per cent year-over-year increase to $2.7 million to represent a margin of approximately 66.2 per cent, though his adjusted EBITDA projection remains at a $0.3 million loss.
“While our business in the earlier part of Q1, 2022 was affected by post-holiday seasonality, we were thrilled to see MRR growth return in March and April,” said Ali Tajskandar, CEO of Wishpond, in the company’s May 3 press release where it announced record monthly recurring revenue for the month of April. “We are expecting continuing growth in May and look forward to providing another update when we report on our Q1 financial results at the end of May.”
Rosenberg has left his financial projections unchanged, calling for revenue of $22.8 million in 2022 for a potential year-over-year increase of 54.1 per cent (the consensus estimate is $22.1 million). Looking ahead to 2023, Rosenberg forecasts an increase to $30.3 million for a potential year-over-year increase of 32.9 per cent, also ahead of the consensus forecast of $28.6 million.
In terms of valuation, Rosenberg forecasts the company’s EV/Sales multiple to come in around 1x in 2022, then drop to a projected 0.8x in 2023, which would come in well ahead of the comparable average of 3.8x, along with the median of 3.5x.
Rosenberg forecasts a widening of the company’s EBITDA margin going forward, calling for a 5.7 per cent margin for 2022 with adjusted EBITDA of $1.3 million compared to the $1 million consensus estimate. Turning to 2023, Rosenberg projects an even wider margin of 6.9 per cent with $2.1 million in adjusted EBITDA, slightly ahead of the $1.9 million consensus projection.
Rosenberg forecasts an EV/EBITDA multiple of 18.1x in 2022 before dropping to 11.3x in 2023, which would come in ahead of the comparable average of 25x and in line with the median of 13.9x.
Meanwhile, Rosenberg forecasts the company’s gross profit to grow from the reported $10 million in 2021 to $15.2 million in 2022 for an implied margin of 66.7 per cent while being in line with the $14.9 million consensus target. Rosenberg projects gross profit to hit $20.3 million in 2023 for an implied 67 per cent margin while being slightly ahead of the $19.3 million estimate set out by the consensus.
Rosenberg’s valuation is based on a 5.5x EV/2023e sales multiple, with the peer group consisting of CRM and marketing software providers as well as small-cap Canadian technology providers.
“We believe long-term trends will be supportive of increasing the use of digital services within SMBs and Wishpond has an opportunity to establish itself as a dominant player in marketing technology in the long term,” Rosenberg said.
Disclosure: Wishpond Technologies is an annual sponsor of Cantech Letter.