Expect a strong H2 from Wishpond Technologies, says Eight Capital

Eight Capital analyst Christian Sgro is holding the line on Canadian marketing tech company Wishpond Technologies (Wishpond Technologies Stock Quote, Charts, News, Analysts, Financials TSXV:WISH), saying in a Thursday client report that a seasonally strong second half to the year is in the cards for WISH.

Wishpond, which has an all-in-one suite of integrated digital marketing products for the small to mid-sized business market, released its second quarter 2022 financials on Wednesday, coming in with record Q2 revenue of $5.0 million, representing a 55 per cent year-over-year increase. The company said its annualized revenue run-rate is now over $20 million for the first time in its history, with management chalking up the topline growth to an expanded sales team, the launch of new products and recent acquisitions.  

“I am particularly proud of having achieved a significant milestone of $20 million annualized revenue run-rate,” said Chairman and CEO Ali Tajskandar in a press release. “Thus far, we have not noticed any slowing down in the demand for our products. In addition, Wishpond also achieved positive cash flow from operations in the second quarter. Our outlook continues to look promising for the second half of the year with increasing sales, improving margins, and positive cash flows. Our sales pipeline remains robust and our revenue growth shows tremendous resilience despite the current uncertain economic environment.”

Other Q2 numbers saw WISH’s gross profit hit $3.4 million compared to $2.2 million a year earlier and a gross margin of 67 per cent for the quarter. The company’s operating loss was $658,712 compared to $1.1 million a year ago, with management saying the continued investment in sales and lead generation along with product development factoring into the loss. Adjusted EBITDA was negative $192,196 compared to $320,027 a year earlier, with management saying higher revenue along with recent cost-saving initiatives and operational efficiencies will result in over $1.0 million in annual cost-savings. Meanwhile, the company ended the quarter with about $2.5 million in cash and no debt.

Subsequent to the quarter’s end, Wishpond launched an all-new Website Builder with a number of new features aimed at increasing customer retention and satisfaction. Management said the second half of 2022 is expected to deliver more record revenues and cash flows, driven by the sales team, new products and contributions from new acquisitions.

“Wishpond is in a very strong financial position with a strong balance sheet, improving cash flows and solid performance across its businesses,” said CFO David Pais in a press release. “We are very pleased with the integrations of our most recent acquisitions, Winback and Viral Loops. Furthermore, we are very pleased with our laser focus on realizing cost efficiencies while maintaining our impressive revenue growth. We look forward to delivering our results and performance in the coming quarters.”

Assessing the quarterly results, Sgro said the Q2 topline was a beat at $5.0 million compared to analysts’ consensus call at $4.8 million and Eight Capital’s forecast at $4.7 million, while the adjusted EBITDA loss of $0.2 million was in-line with both the Street’s and Sgro’s calls at negative $0.2 million.

Sgro said he has updated his estimates accordingly, making minor changes, and said there’s likely to be a boost over the second half for WISH circling around consumer behaviour related to back-to-school, Thanksgiving and the holiday season. On the M&A front, Sgro said with five acquisitions completed in its now 18 months as a public company, Wishpond has meaningfully broadened its platform.

“Wishpond reported results ahead of consensus on the top-line, with a bullish outlook into the seasonally strong H2. As the company maintains its pace of growth while becoming thoughtful about cost optimization, we see a path to stable profitability before the end of 2023,” Sgro wrote. 

“We are ultimately cautious on the demand environment, with management positive on retention rates, their pipeline, and the TAM. We look to continued execution in Q3 and a build into the seasonally strongest Q4 as Wishpond continues to prove out the resiliency of the growth engine in the face of an uncertain macro,” he said.

With the update, Sgro reiterated his “Neutral” rating on WISH while raising his target price from $0.90 per share to $1.10 per share, which at press time represented a projected return of 18 per cent.

Looking ahead, Sgro is forecasting Wishpond to deliver full 2022 revenue and adjusted EBITDA of $21.5 million and negative $0.3 million, respectively, and 2023 revenue and adjusted EBITDA of $28.0 million and $1.4 million, respectively.

On valuation, the analyst sees WISH gong from an EV/Revenue multiple of 3.2x in 2021 to 2.2x in 2023 and to 1.7x in 2023. Sgro said WISH is currently trading at 1.7x compared to its larger SaaS and digital marketing peers at 4.7x. 

Disclosure: Wishpond Technologies is a annual sponsor of Cantech Letter.