Q4 Inc. has a 17% upside, says RBC Capital

RBC Capital Markets launched coverage on Thursday of investor relations website management platform Q4 Inc (Q4 Inc Stock Quote, Charts, News, Analysts, Financials TSX:QFOR) starting the stock off with a “Sector Perform” rating and C$3.50 price target. RBC analyst Maxim Matushansky said Q4 has a leading position in its field but challenging market conditions put a question mark on its growth prospects.

Toronto-based Q4 is a capital markets communications company with an end-to-end platform providing website management, virtual events, analytics and CRM, with currently about 58 per cent of the S&P 100 as clients. The company released its third quarter 2022 financials earlier this month, coming in with $14.2 million in revenue for a nine per cent year-over-year growth rate and a net loss of $11.9 million compared to a loss of $4.7 million a year earlier. (All figures in US dollars except where noted otherwise.)

Pegging Q4’s total available market at $2.5 billion based on a $1.3 billion market for public companies and a $1.1 billion market for sell-side companies, Matushansky said Q4’s revenue is virtually all recurring, providing high visibility for maintaining its current revenue base and, further, that with continued organic development along with inorganic expansion (the company has completed four acquisitions in the past seven years) into further products, Q4 can significantly expand its market.

“In the corporate market, Q4 has established itself as a leader in IR website management, and is widely recognized and utilized by leading public companies in North America. Q4 is utilizing this client base to expand into IR analytics, intelligence, and CRM products that have larger competitors like NASDAQ’s investor products,” Matushansky wrote.

At the same time, the analyst said the company is facing near-term headwinds from slower customer additions and elevated customer churn, which is currently at over eight per cent. He said growth above its current levels (2022 is looking to post revenue growth of 13 per cent year-over-year) is likely to need “substantial” product uptake, something that’s less achievable in today’s weaker macroeconomic environment.

“While there is the potential for margin improvement and expansion in new markets in a more normalized IPO and macroeconomic environment, on a relative basis we believe there is better risk/reward in other names in our coverage universe,” Matushansky said.

Matushansky thinks Q4 will end 2022 with revenue of $56.7 million and adjusted EBITDA of negative $28.7 million and expects those numbers to rise in 2023 to $64.9 million in revenue and negative $9.2 million in EBITDA. For 2024, he is forecasting $72.8 million in revenue and positive $0.1 million in EBITDA.

At the time of publication, Matushansky’s C$3.50 target represented a projected one-year return of 17.1 per cent.

Disclosure: Q4 is an annual sponsor of Cantech Letter