AcuityAds is a double, says Echelon

Shares of Canadian ad tech company AcuityAds (AcuityAds Stock Quote, Charts, News, Analysts, Financials TSX:AT) have been languishing for months now, but Echelon Capital Markets analyst Rob Goff sees life in the stock up ahead. Goff reviewed the latest quarterly numbers in a Friday report to clients, saying the current enterprise value at $53.8 million heavily discounts the growth profile of AcuityAds’ illumin programmatic platform.

AcuityAds, which provides real-time bidding solutions for digital advertising, announced its fourth quarter and full year 2022 financials on Thursday. Q4 revenue was up 8.7 year-over-year and up 38.2 per cent sequentially to a record $40.0 million. Gross margin was 48.4 per cent and adjusted EBITDA was $2.4 million compared to $5.9 million a year earlier.

The company said investments in sales and marketing and product development helped spur the revenue growth, while illumin’s self-serve component saw an 86 per cent sequential rise in new self-serve customers.

“illumin continues to exceed our expectations in terms of both revenue growth and its increasing contribution to total revenue, which represented over 56 per cent of our overall revenue for the fourth quarter. This contribution was well in excess of our previously stated goal of reaching 50 per cent for the same timeframe,” said Tal Hayek, founder and CEO, in a press release.

Goff said AT’s fourth quarter revenues and EBITDA of $40 million and $2.4 million, respectively, compared to his estimates at $37.5 million and $3.0 million, respectively, and the consensus forecast at $38.2 million and $3.3 million, respectively.

“We view the quarter positively where the illumin traction across both managed and in particular the self-serve revenues highlight commercial demand for the service while the adoption seen in the quarter represents a significant de-risking of the business transition to the illumin platform. We hold the potential for higher revenue scenarios over 2023 and 2024 where EBITDA is modestly below our forecasts as the Company “builds into its advantage,” Goff wrote.

Goff noted that AcuityAds finished the quarter with $85.9 million in cash and having repurchased about 4.7 million shares through its NCIB for $14.5 million. He said he expects the company to remain active in share buybacks, which management intends to fund through free cash flow from operations.

On the acquisition front, Goff said small or mid-sized tech acquisitions are likely in the cards where scale is a lower priority given the traction being generated by illumin.

“We believe the current enterprise value of $53.8 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 million for the year,” he said.

With the update, Goff reiterated a “Speculative Buy” rating and $4.50 target on AT, implying at the time of publication a one-year return of 100 per cent.

“Our Street-high price target at $4.50 reflects confidence in the successful transition and uptake of illumin,” Goff said.