Vertical Scope keeps Buy rating with Eight Capital

Eight Capital analyst Adhir Kadve is sticking with a “Buy” rating on VerticalScope (VerticalScope Stock Quote, Charts, News, Analysts, Financials TSX:FORA) after reviewing the company’s latest financial results in a Wednesday update. Kadve said the online media platform is currently dealing with macro-level uncertainties but is likely to be increasing its market share of online ad spending in the quarters to come.

Toronto-based VerticalScope has a cloud-based platform for online enthusiast communities in high consumer spending categories, with a portfolio of over 1,200 communities and over 110 million monthly active users. 

The company announced its fourth quarter and year-end financials on Tuesday, reporting revenue down 11 per cent year-over-year for the Q4 to $19.1 million. Revenue for the 2022 year was up 22 per cent from 2021. On adjusted EBITDA, the fourth quarter was also down 23 per cent year-over-year to $7.2 million but up six per cent to $30.9 million for the year. (All figures in US dollars except where noted otherwise.)

Management, who had pre-announced Q4 numbers on February 1, 2023, pointed to tough quarterly comps for the quarter, as last year’s online engagement environment was particularly strong.

“Our Q4 results came in lower than last year as a result of macroeconomic weakness through the holiday shopping period which translated to lower advertising rates as well as reduced volume from e-commerce partners,” said founder, Chair and CEO Rob Laidlaw in a press release. “We took steps to streamline our operations in February which will allow us to maintain a strong financial position as we work through the current economic environment while continuing to improve our platform for our communities.”

Kadve called the Q4 results mixed, where revenue at $19.1 million was below his estimate at $20.0 million as well as the consensus at $19.8 million. Adjusted EBITDA at $7.2 million was in-line with Kadve’s forecast at $7.3 million as well as the Street’s $7.1 million. 

Drilling down, Kadve noted the company’s Digital Advertising revenue at $14.2 million was down six per cent year-over-year but up seven per cent sequentially, while E-commerce revenue at $4.8 million was down 24 per cent year-over-year and down 22 per cent from the previous quarter. Kadve said the company’s monthly active users at 113.6 million were up seven per cent year-over-year but down 5.9 per cent year-over-year on an organic basis.

“All-in, we continue to like several of VerticalScope’s attributes including high margins, free cash flow generation, and we believe that the company’s communities are poised to capture greater share of ad spending dollars, given strong positioning as a top-ten social media platform in North America, as macro uncertainties subside,” Kadve wrote.

With his reiterated “Buy” rating, Kadve maintained 12-month target price of C$13.50 per share, which at press time represented a projected one-year return of 87.5 per cent.