Lots of upside to owning Sabio stock, says Eight Capital

Eight Capital initiated coverage on Wednesday of Sabio Holdings (Sabio Holdings Stock Quote, Charts, News, Analysts, Financials TSXV:SBIO), with analyst Kiran Sritharan saying the ongoing streaming revolution in digital media puts Sabio in a prime spot to grow its connected TV (CTV) and over-the-top (OTT) advertising business. 

Sritharan started Sabio off with a “Buy” rating and C$3.50 target price, which at press time represented a projected one-year return of 272 per cent.

“Sabio has attractive targeting options that can triangulate specific households in the US to curate campaign strategies around them. We like Sabio’s product-market fit and model, which has delivered above industry growth and market share gains,” Sritharan wrote.

What is Sabio?

Founded in 2016 by CEO Aziz Rahimtoola and a team of ad tech and media veterans, Sabio currently has over 120 employees across the US, Canada and India, while shares began trading on the TSX junior board in November 2021. 

Sabio offers business solutions for advertising, audience analytics and content monetization in mobile and streaming TV. The company has three main businesses, starting with its core business in demand-side platform Sabio, which executes client campaigns across both CTV and Mobile display.

Then there’s supply-side platform Vidillion, which distributes content from CTV and OTT publishers and monetizes them by connecting their ad inventory with demand. Finally, there’s App Science, Sabio’s data and real-time insights for advertisers to help inform advertisers about the effectiveness of their targeting.

Why is Sabio a Buy?

Sritharan said CTV is disrupting traditional advertising as audiences continue to cut the cable in favour of streaming content, moving marketing dollars over to CTV channels. The analyst said growth forecasts have CTV/OTT ad spend increasing by 27 per cent year-over-year in 2023. 

At the same time, CTV campaigns are also target brand-receptive audiences through precise audience segmentation, something previously unavailable to traditional TV ad strategies.

“We like Sabio’s end-to-end tech stack with the ability to connect brands and publishers within its own ecosystem. This keeps supply costs low and helps mitigate margin compression. We observe Sabio’s competitive advantage to be its ability to target multicultural households in the US and benefit from broader demographic changes. Targeting through its proprietary insights platform helps drive campaign ROIs and improve customer retention,” Sritharan said.

By the numbers, Sritharan sees Sabio’s revenue going from $42.3 million in 2022 to $53.1 million in 2023 and to $67.2 million in 2024. Adjusted EBITDA is forecasted to go from $1.3 million in 2022 to $1.1 million in 2023 and to $3.7 million in 2024. (All figures in US dollars.)

On a comps basis, Sritharan estimates SBIO to be currently trading at 0.5x 2024 EV/Revenue versus its ad tech peers in Canada at 1.2x and its larger US peers at 4.4x.

“We think continued fundamental outperformance will drive share price appreciation and increased interest from investors,” Sritharan wrote.

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