AcuityAds keeps Speculative Buy rating with Echelon

Echelon Capital Markets analyst Rob Goff likes the momentum building behind AcuityAds Holdings (AcuityAds Stock Quote, Charts, News, Analysts, Financials TSX:ILLM). Goff reviewed the latest quarter coming from AcuityAds, now known as illumin, in a Friday report to clients where he reiterated a “Speculative Buy” rating on the stock.

Ad tech company illumin, which provides real-time bidding (RTB) solutions for digital advertising, reported its Q1 2023 results on Thursday, featuring revenue up 11 per cent year-over-year to $26.5 million and an adjusted EBITDA loss of $1.3 million compared to a gain of $0.2 million a year earlier. The company said the earnings drop was related to R&D and sales & marketing spend. 

The illumin platform itself saw revenue climb 113 per cent year-over-year to $16.7 million, while its self-serve revenue was $2.2 million compared to $0.1 million a year earlier, with the company saying new self-serve customers were up 74 per cent, with 40 new logos taken on over the quarter.

“illumin continues to be a substantial growth driver for us both in overall revenue and its contribution to total revenue, which was 63 per cent for the quarter,” said Tal Hayek, co-founder and CEO, in a press release. “Our recent company rebrand to illumin and ticker symbol change reflects the anticipated importance of this revolutionary technology platform to our revenue growth and overall company mission of enabling brands and agencies to reach consumers at every stage of the marketing journey.”

Commenting on the quarter, Goff said the $26.5 million topline was above his forecast and the consensus at $25.7 million and $25.3 million, respectively, and he called the outperformance impressive considering the company’s seasonally-adjusted slow start. 

“Traction across both managed and the self-serve revenue illumin represents a significant de-risking as the Company looks to sunset its legacy services and complete the transition to the illumin platform in H223. We continue to consider the potential for higher revenue scenarios over 2023 and 2024 where EBITDA begins to demonstrate scale in 2024,” Goff wrote.

EBITDA at negative $1.3 million was a larger than expected loss, where Goff had estimated negative $0.8 million and the Street had called for negative $0.3 million.

Up ahead, Goff is calling for full 2023 revenue and EBITDA of $130.7 million and $4.9 million, respectively, and moving to 2024 revenue and EBITDA of $147.7 million and $9.5 million, respectively.

With his “Speculative Buy” rating, Goff reiterated a 12-month target of $4.50, representing at press time a projected return of 143 per cent. He said ILLM currently trades at 2023 and 2024 EV/gross profit of 0.6x and 0.5x, respectively, and 2023 and 2024 EV/EBITDA of 7.6x and 4.0x, respectively, which he compares to its peer group at 2023/2024 EV/gross profit of 4.3x/3.5x and 2023/2024 EV/EBITDA of 8.9x/6.7x.

“We believe the current enterprise value of $37.7 million heavily discounts the revenue profile for illumin where revenues have advanced from $26.0 million in 2021 to $53.8 million in 2022, exceeding our forecast at ~$50.0 million for the year,” Goff said.