Eight Capital trims target on VerticalScope

Slight misses in its latest quarter and low near-term visibility on growth prospects in the advertising space combine to cause Eight Capital analyst Adhir Kadve to revise his estimates and ultimately his target price on VerticalScope Holdings (VerticalScope Stock Quote, Charts, News, Analysts, Financials TSX:FORA). Kadve delivered an update on the company on Thursday after third quarter earnings, with the analyst maintaining a “Buy” rating on the stock while lowering his target from C$20.00 to C$13.50 per share.

VerticalScope, a digital media company with ownership of over 1,200 online communities, reported its third quarter 2022 financials on Tuesday, coming in with revenue up 40 per cent year-over-year to $19.6 million. Adjusted EBITDA was also up by 40 per cent to $7.0 million. Monthly active users increased by 17 per cent to 110 million. (All figures in US dollars except where noted otherwise.)

“We had another good quarter despite the challenges that have emerged over the past few months in the macro environment,” said Rob Laidlaw, Founder and CEO, in a press release. 

“We believe there is tremendous untapped potential in our communities that will be unlocked in the months and years ahead, but we expect that the macro environment will weigh on our results over the next few quarters as consumers pull-back spending, and advertisers re-visit their budgets,” he said.

Comparing results, Kadve said the $19.6 million topline was under his forecast at $19.7 million and the consensus call at $20.1 million. Digital Advertising revenue was up 33 per cent year-over-year but down six per cent sequentially, while E-commerce revenue at 6.2 million was up 58 per cent year-over-year but down 18 per cent from the previous quarter. Adjusted EBITDA at $7.0 million compared to the Eight Capital forecast at $7.6 million and the Street’s forecast at $7.7 million.

In his comments, Kadve noted that the slowdown is industry-wide and not specific to VerticalScope, which he still likes going forward.

“Over the longer term as macro uncertainties subside, we reiterate that we like FORA’s strong margin profile (we expect adj. EBITDA margins will likely remain at +35 and FORA will continue to generate FCF), ability to capture greater spend levels from advertisers given its niche communities and performance-based marketing and ongoing initiatives aimed user experience and ARPU growth. Thus, we believe that the pullback in share prices post-print offers longer-term investors an attractive entry point to build or add to a position,” Kadve wrote.

Looking ahead, Kadve is forecasting full 2022 revenue and adjusted EBITDA of $81.4 million and $30.9 million, respectively, followed by 2023 revenue and EBITDA of $82.5 million and $29.7 million, respectively. At press time, his new C$13.50 target represented a projected one-year return of 127 per cent.