Daniel Rosenberg of Paradigm Capital Markets views SNIPP Interactive (SNIPP Interactive Stock Quote, Charts, News, Analysts, Financials TSXV:SPN) as a sound investment option, maintaining a “Buy” rating and C$0.30/share target price for a projected one-year return of 94 per cent in an update to clients on Wednesday.
Vancouver-based SNIPP Interactive provides mobile marketing, rebates and loyalty solutions in the United States, Canada, Ireland and internationally through its suite of products, including solutions for mobile receipt processing, a promotion and sweepstakes platform and data analytics with the aim of helping brands better understand and engage with their customers.
Rosenberg’s report arrives after SNIPP Interactive released its first quarter financial results for the 2022 fiscal year, which Rosenberg noted to be above expectations as they were headlined by revenue of $4.2 million (all report figures are in US dollars, unless otherwise noted) to beat the Paradigm estimate of $3.4 million while also producing a 63.6 per cent year-over-year increase, which Rosenberg attributed to strong organic growth and a record backlog, which came in at $10.8 million for a 44 per cent year-over-year increase.
The revenue beat also led to solid performance on the margins, as SNIPP reported $2.4 million in gross profit for a 35.3 per cent year-over-year increase while beating the $2 million Paradigm projection, while adjusted EBITDA of $0.3 million was in line with the Paradigm estimate of $0.2 million.
Overall, SNIPP ended the quarter with $1.9 million in cash available with no debt, aided by a $5 million investment from Bally’s Corporation after they purchased a minority stake in SNIPP in April, with the funds to be used to fund sales and marketing purposes, along with general working capital.
Company management indicated that it successfully completed its first integrations with Gambit Rewards, a proprietary and patent-pending platform for turning loyalty points into free-to-play tokens which it acquired in February. Gambit is also getting a boost from Bally’s in terms of rebranding its platform, which Rosenberg believes could accelerate user growth beyond its 16 million annual visitor count.
“The first quarter continued to demonstrate the continued growth of our core business. We are incredibly pleased with the strong start to the year this has given us. In addition, on the back of our sustained growth we closed on two strategic steps in the first quarter. The first was our acquisition of Gambit Rewards and the second was on closing a strategic investment from Bally’s Corporation.” said Atul Sabharwal, Founder of Snipp Interactive in a May 31 press release. “Both initiatives are expected to yield tangible growth for us in future quarters. With Gambit Rewards, we have already completed our first major set of integrations and soon to be announced partnerships. We are also in the process of re-branding the platform with the assistance of Bally’s before embarking on a larger roll out.”
With an expectation of strong growth momentum in the second half of 2022, Rosenberg has made revisions to his overall financial projections, raising his revenue target for 2022 from $24.6 million to $24.9 million for a potential year-over-year increase of 62.7 per cent. Looking ahead to 2023, Rosenberg raised his estimate from $33.2 million to $33.9 million for a potential year-over-year increase of 36.1 per cent, though that number is conservative in relation to the consensus estimate of $42.4 million.
From a valuation perspective, Rosenberg forecasts the company’s EV/Revenue multiple to be 1.2x in 2022 before dropping to a projected 0.9x in 2023, presenting a discount to the peer group average of 2.2x.
Rosenberg also raised his gross profit projection to $12.1 million in 2022 for a 48.6 per cent margin, though the margin shrinks to a projected 44.4 per cent in 2023 with gross profit estimated at $15.1 million.
Meanwhile, Rosenberg maintained a $1 million adjusted EBITDA projection for 2022 for a 4.2 per cent margin, which he forecasts to increase to 10.1 per cent ($3.4 million in adjusted EBITDA) in 2023, paired with EV/EBITDA multiples of 28.5x for both 2022 and 2023, trading at a premium compared to the peer group average of 16x.
Looking ahead, Rosenberg acknowledges the company’s present valuation as being conservative, though an increased Gambit user base could lead to valuation changes in the future.
“We see a meaningful opportunity for SNIPP to rapidly scale within its existing client base through both geographic and brand portfolio expansion,” Rosenberg said. “The recent acquisition of Gambit Rewards expands SNIPP’s loyalty offering into the rapidly emerging category of online gaming and sports betting and provides cross-selling opportunities into large loyalty program operators.”
SNIPP Interactive has seen its stock price sliced by 48.3 per cent since the start of the year, falling off after starting the year trading at C$0.30/share and recently hitting a 2022 low of C$0.14/share on May 12.