Sabio still has an upside of 218%, IA Capital says

Following the company’s second quarter results, Industrial Alliance Capital analyst Neehal Upadhyaya remains bullish on Sabio Holdings (TSXV:SBIO).

On August 21, Sabio reported its Q2, 2023 results. The company posted Adjusted EBITDA of negative $1.7-million on revenue of (US) $8.0-million, a topline that was up 11 per cent over the same period last year.

“We are pleased to have once again delivered double-digit revenue growth in a challenging economic environment, led by a 57% increase in our CTV/OTT business,” said Aziz Rahimtoola, Chief Executive Officer. “Supported by our highly differentiated, end-to-end CTV/OTT technology stack, under which the majority of Sabio’s CTV impressions are delivered through direct supply, we continue to gain market share and outpace industry averages1 in the category.”

The analyst says Sabio is gaining market share within the growing OTT/CTV advertising sector, but the ride there might be a little bumpier than expected.

Q2/23 revenues came in at $8.0M, below our forecast of $8.2M but slightly above consensus at $7.9M. The miss versus our forecast was due to a lower-than expected decline in the Company’s mobile sales, which was partially offset by impressive CTV/OTT sales of ~$4.9M, up ~56% YoY. Gross margins for the quarter were 60.4%, higher than our 60.0% estimate. Gross margins remain a bright spot and while other companies within the AdTech space are facing margin compression, SBIO has thrived. Because Vidillion provides more ad inventory for Sabio’s DSP at better rates than competing SSPs, we expect gross margins to continue being robust. Adj. EBITDA came in at ($1.7M), which was well below our ($1.5M) estimate and consensus of ($ 1.6M). The miss from our forecasts was due to lower-than-expected revenues along with higher-than-expected S&M spend.

In a research update to clients August 23, Upadhyaya maintained his “Buy” rating on Sabio, but trimmed his price target from $2.50 to $1.75. The new target implied a return of 218.2 per cent at the time of publication.

The analyst believes Sabio will post Adjusted EBITDA of negative $2.7-million on revenue of $38-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $3.3-million on a topline of $49-million.