AcuityAds Holdings Inc.
(AT-T) C$2.17
Estimates Reduced Despite Return to Revenue Growth Event
Q3/22 results
Impact: SLIGHTLY NEGATIVE
Q3 revenue fell a bit short of our estimates, albeit positive Y/Y growth was restored for the first time this year (negative in both Q2/Q1), and customer/revenue metrics for illumin continued to improve both sequentially and Y/Y.
Our revenue estimates for Q4/22 and FY23 have declined for two key reasons: a) we do not believe that AT will be immune to recessionary impacts on the overall advertising market; and b) the focus for management is on improving more sustainable and recurring revenue on the self-serve side for illumin, which could lead to a bit of erosion in managed services revenue on legacy platforms. Note that the annualized run-rate of illumin self-serve was $4.8mm in Q3/22 and we expect that to more than triple by the end of 2023, but that still leaves either legacy platform revenue or managed services illumin revenue as a large portion of consolidated revenue in FY23.
EBITDA was below expectations and management guided towards lower EBITDA in future quarters owing to deliberate investments in driving sales and adoption of illumin. We have lowered our estimates accordingly.
TD Investment Conclusion
illumin is gaining traction and the future looks bright, in our view, but with both a recession on the horizon and another likely year of transition in 2023 (declining legacy platform revenues plus EBITDA growth held back by sales/marketing investments), we decided to lower our target multiple to 2.0x 2023E net sales (3x previously). The net impact has been a reduction in our target price to $3.75 (previously $5.50).
Our new target multiple still represents a big improvement from 0.8x 2022E net revenue where AT shares trade today, so we expect investors to get more positive on the name as the proportion of recurring revenue from illumin increases. With the lowered near-term EBITDA expectations, our new target price equates to 12.7x 2023E EBITDA, which is a touch higher than 11.5x prior to today's estimate revisions. We remind investors that further downside risk for the stock should be mitigated by ongoing share buybacks and the fact that cash of $88mm equates to ~$1.50 per share. We maintain our BUY rating.