VerticalScope has target cut by Eight Capital

A lull in the digital advertising space has Eight Capital analyst Adhir Kadve cooling his jets on VerticalScope Holdings (VerticalScope Stock Quote, Charts, News, Analysts, Financials TSX:FORA). Kadve kept a “Buy” rating on the stock in a Monday update to clients but lowered his target price from C$13.50 to C$7.00.

Toronto-based VerticalScope, which focuses on acquiring and developing online enthusiast communities, announced its first quarter 2023 results on May 11, featuring revenue down 36 per cent year-over-year to $12.9 million. Adjusted EBITDA at $2.9 million was down 60 per cent, while the Q1 net loss was $4.5 million compared to a net loss of $11.9 million a year earlier. (All figures in US dollars except where noted otherwise.)

The company said the topline drop was due to challenging market conditions in digital advertising and e-commerce as well as lower search-related traffic.

In his quarterly comments, CEO Rob Laidlaw said he’s confident the Q1 was the trough in the company’s results and that the revenue headwinds are short-term.

“Macroeconomic pressure increased in the quarter which impacted both our advertising and e-commerce revenue, but we responded accordingly and have made the necessary changes that will allow us to emerge from this period in a much stronger position,” said Laidlaw in a press release.

Looking at FORA’s Q1, Kadve said the $12.9 million topline was a miss compared to his forecast at $16.7 million and the consensus at $15.3 million, while adjusted EBITDA at $2.9 million was also under his call at $5.3 million and the Street at $4.0 million.

Kadve noted key performance indicators for VerticalScope such as monthly active users (MAUs) which were down 11 per cent year-over-year to 100.4 million and digital advertising average revenue per user (ARPU) was down 27 per cent year-over-year to $0.043. Digital Advertising ARPU was down 15 per cent to $0.033 and eCommerce ARPU was down 50 per cent to $0.010.

“VerticalScope reported Q1/F23 results that broadly missed Consensus and our expectations as an uncertain macroeconomic backdrop contributed to a softening advertising spend environment impacting both programmatic and direct advertising and Google algorithm changes reducing search traffic to VerticalScope’s properties, thus lowering MAUs,” Kadve wrote.

“Further, key asset The Streamable was impacted by lower user acquisition budgets across the online streaming industry. All that said, VerticalScope noted that Q1 should be a trough for the year and that they are seeing some green shoots forming on the advertising side, though eCommerce will remain challenged in the near-term,” he said.

For the 2023 year, Kadve lowered his forecast to $59.1 million in revenue (previously $70.4 million) and $16.9 million in EBITDA (previously $24.8 million). At press time, the analyst’s new C$7.00 target represented a projected one-year return of 77 per cent.