VerticalScope has price target chopped at Beacon

In a research update to clients April 9, Beacon analyst Gabriel Leung kept his “Buy” rating on VerticalScope Holdings (Stock Quote, Chart, News, Analysts, Financials TSXV:FORA) but lowered the 12-month price target from $19.50 to $12.00.

VerticalScope issued a business update and revised its 2025 financial outlook on April 8, warning of ongoing challenges. Since reporting its fourth-quarter results in March, the company has encountered several new issues expected to impact its performance through 2025, particularly regarding user growth.

VerticalScope says it’s facing several challenges likely to affect its business in 2025.

First, changes in how video ads are categorized on its forums have caused fewer bidders and lower ad rates, which hurt video ad revenue in the first quarter. Management expects this decline to continue through the rest of the year. Video ads comprised just under 10% of programmatic revenue in Q4, or about $1 million.

Second, a recent Google search algorithm update in March led to nearly a 10% drop in monthly active users. The company is working on ways to recover traffic but says it could take several quarters to see results.

Lastly, broader economic uncertainty makes it harder to predict when content licensing deals will start generating meaningful revenue in 2025.

VerticalScope now expects its 2025 adjusted EBITDA to be between $21–24-million, down from earlier expectations from Beacon of $33.5-million. Free cash flow is projected at $20–22-million, with a strong conversion rate of 85% or higher. The company has completed four acquisitions this year, totalling $7.3-million and continues to pursue more while aiming to keep its debt levels between 1.0–1.5x.

Previously, management had guided for flat monthly active users (MAUs) in Q1 at around 112 million but now expects a 10% year-over-year decline. It had also aimed for double-digit organic MAU growth in the second half of 2025 through initiatives like AI-powered language translation and improved mobile app engagement. Following the latest update, that growth target appears delayed.

Leung says some of these top-line headwinds are likely a result of a more challenging macro environment impacting CPM rates.

“Furthermore, we believe Google AI Overviews (which uses generated AI to create summaries for certain search queries) is potentially impacting click-through rates (which will likely require optimizing SEO strategies),” Leung says.

Beacon has lowered its CY25 EBITDA forecast. Leung says he expects FORA will do $22.4-million in Adjusted EBITDA on revenue of $62.5-million in fiscal 2025. He thinks those numbers will improve slightly to $24.1-million on revenue of $65.6-million in fiscal 2026.