Sabio Holdings is almost a triple, says Paradigm

Good-looking quarterly numbers have Paradigm Capital analyst Daniel Rosenberg staying bullish on advertising technology name Sabio Holdings (Sabio Holdings Stock Quote, Charts, News, Analysts, Financials TSXV:SBIO). Rosenberg remarked in a recent update on the company that despite a tougher economic backdrop, Sabio has demonstrated its ability to keep growing its sales pipeline as well as the size of its contracts.

Sabio’s products support advertisers in the video on demand and streaming spaces through connected TV (CTV) and over-the-top (OTT) cloud-based technology for content distribution, monetization and analytics and its demand-side platform gives marketers the ability to plan, buy and execute programmatic ad campaigns backed by Sabio’s AppScience data and insights platform.

The company announced second quarter 2022 financials on August 25, showing record quarterly revenue of $7.2 million, up 70 per cent year-over-year. The topline was divided into $3.2 million in CTV/OTT Streaming revenue compared to $1.5 million a year earlier and $3.9 million in Mobile revenue, up from $2.7 million a year earlier. Adjusted EBITDA was a loss of $1.4 million. (All figures in US dollars except where noted otherwise.)

“Our early focus on the ad-supported streaming/connected TV (CTV) market continues to pay dividends as we are pleased to deliver yet another record revenue quarter,” said CEO and Founder Aziz Rahimtoola in a press release. 

“Our investments in sales and technology backed by a complete end-to-end product suite enables us to out-grow the market and gain share despite the uncertain macro-economic environment. We continue to add major brands as new customers and deepen our relationships with existing customers— as witnessed by increasing average deal size and, for the first time in Company’s history, winning upfront deals from major brands,” he said.

Sabio management said it’s now beginning to see the results of earlier investments in its sales and marketing teams and the company is forecasting positive adjusted EBITDA over 2022’s second half, normally the stronger of the two halves of the year for the advertising industry. 

“In the second half of 2022, Sabio expects it will continue to deliver robust organic revenue growth on a year-over-year basis and gain market share, driven by our strengthened salesforce, continued investments in our political apparatus ahead of the 2022 U.S. midterm elections, the investments we have made in our product offerings, including the commercialization of our App Science business and the completion of an end-to-end, CTV/OTT ecosystem through our acquisition of Vidillion,” Sabio said in the press release. “As a result, we are in a unique position to continue to capitalize on the burgeoning CTV/OTT streaming advertising market.”

Looking at the quarterly results, Rosenberg said Sabio’s topline at $7.2 million was above the consensus forecast at $6.8 million while being slightly below Paradigm’s estimate at $7.3 million. The adjusted EBITDA loss of $1.4 million was below both Rosenberg’s call as well as the Street’s at a loss of $0.1 million.

Rosenberg said Sabio’s cash generation should improve with the US midterm election spend as well as the upcoming holiday season, with the company ending the quarter with $2.5 million in cash and $6.0 million in debt including leases. The analyst noted that Sabio has about $3.0 million undrawn from a $7.0 million credit facility.

Sabio’s share price has mostly dropped since its debut last November, but Rosenberg sees a lot of room to grow for the stock, reiterating with his update a “Buy” rating on SBIO while lowering his 12-month target from C$3.25 to C$3.00. At press time, the new target represented a projected one-year return of 191 per cent.

“Sabio has built a comprehensive technology portfolio and is trusted by some of the world’s leading brands and agencies,” Rosenberg wrote in his August 26 report. “The industry has substantial tailwinds including shifting viewer habits that are supportive of continued rapid growth. Sabio is in the early stages of commercializing its analytics platform, App Science. In addition to rapid organic growth, we see meaningful optionality to monetize App Science in the attractive TV analytics market, estimated to be a $1.9 billion opportunity,” he said.

On a comps basis, Rosenberg has Sabio currently trading at 1.6x 2023’s EV/Revenue versus its AdTech industry peers at 3.9x. Rosenberg said Sabio’s CTV offering supplemented by its App Science platform is “a key differentiator” and that it’s increasingly attracting blue-chip customers. 

“We find it notable for a small AdTech company to attract marketing dollars from enterprise-grade customers and to do so without burning substantial capital. We believe this speaks to the value of Sabio’s differentiated offering. While near-term business spending may see macro headwinds, for long-term investors Sabio offers an attractive upside. We reiterate our Buy recommendation,” Rosenberg said.

Disclosure: Sabio Holdings is an annual sponsor of Cantech Letter.