As many do know I love these AdTech businesses as they reach scale and I have touched on many of these businesses especially into FY22 as they start to roll out these Programmatic Offerings. Whether it be Zoomd Technologies or Adocre Inc. but today is about Kidoz Inc.
 
This story is a little different, this is single handily my favourite business model in the entire Canadian small cap market. Kidoz has something that these other names don’t have and that is their Standard Design Kit (SDK) tied into both iOS & Android. This SDK allows for a walled garden within app developers that allows them to scale rapidly much cheaper and much faster and work with publishers.
 
This fact turns them into an aggregator of attention on a platform basis that at its core what has churned out all these great tech platforms of the last the last decade.
 
The strategic and network value of this platform just continues to grow as it scales and there have been a couple of key regulatory/technological developments that are occurring here that the market is not seeing

Lets Jump In;
 


KIDZ – Kidoz Inc.
 
 

What to Expect in 2022
 

The first thing here that has to be touched on is the Programmatic offering launch that is just starting to be rolled out that is going to be the big growth driver into FY22. This opens up the scalability on the sales side and on a profitability basis as management has previously stated they are seeing so much growth in the monetizable impression growth that they can’t scale up the direct sales side fast enough to fill all the inventory. In the future as the product shifts to more of a programmatic basis they will be able to fill the monetizable inventory so much more efficiently and ad rates should follow higher for some extra torque to the upside.


Piggy backing on the previously mentioned has to monetizable impression growth the life blood of the business and what I am so BULLISH on. You are seeing it on all fronts from Kidoz SDK adoption, geographic expansion, market expansion and the broader secular adoption of mobile gaming and screen time. This is the key KPI to track and in the first 3Qs of this year the number continues to accelerate (Q1 – 192M impressions, Q2 – 256M impressions & Q3 – 345M impressions). This figure continues to grow at a 30%+ QoQ pace which equates to 200% YoY growth pace. You can see how once the Programmatic offering is rolled out there is massive impression growth to sell ad inventory into and its not hard to see an acceleration in the growth rate for FY22 over FY21 which was already growing at a 50%+ YoY pace on a topline revenue basis.

Just a couple points I want to hit on what is driving impression growth;
 
Geographic Expansion – Currently they are 75% North America / 20% Western Europe / 5% Far East. They have a sales model of partnering with mediation platforms to gain access into other markets you have seen multiple partnerships in Europe this year and the massive one that I am very BULLISH on into FY22 is their TradPlus agreement that gives them access to the Chinese market. As an aggregator this gives Kidoz the opportunity to add hundreds of millions of mobile users into their network. This is all incremental growth on top of the North America business that is growing Revenue up 150% YoY.
 
Market Expansion – They built their model to target the <13 age and family market. But this fall they announced they are starting to expand to the teen and parent market. This is all Total Addressable Market Expansion (TAM) for a point of differentiation. They will be able to take what they have learned and the relationships they have developed on the contextual marketing side and broaden out the offering.
 
Secular Adoption – I think this one is obvious but it must be touched on because I don’t think people realize the power of this secular shift. The shift to mobile is just massive, they even laid it out in a recent press release talking about $400 Billion mobile ad market by 2026 w a 32.5% growth rate. It’s not even just the mobile ad growth rate you are combing this mobile growth with the fastest growing spaces of that in shifting to Programmatic advertising especially when it’s tied to gaming and App development. You can’t come up with a better placed business model within a walled garden with their SDK.
 
 
The Kicker here and why I think it should trade at such a premium is the positing of the platform from a regulatory perspective. To start with it has checks the boxes of table stakes now for the industry being GDPR and COPPA compliant but the big thing here is iOS14 changes, iOS Take Rate and Google Cookies/Tracking changes into FY23.
 
With iOS14 changes in Q3 this year was a shot across the bow of the entire AdTech industry this year. All these companies that were reliant on third party tracking and access to cookies all of a sudden saw ROI on their ad spend come way down. Kidoz uses a contextual approach so as a result is not reliant on either 3rd party cookies or unique identification to drive their ROI on their platform. This creates a massive tailwind of share gains potential going into FY22 that we should start to see in Q4 FY21.
 
Second element here is Apple coming under pressure on take rate on their App Developers on their platform. They are and will continue to be under constant pressure to reduce the rake they take from Developers; this will have a direct flow through to Kidoz as they support these Developers with monetization tools as it brings more of the economics of the business back to Developer side away from Apple.       
 

 
 

On the Numbers
 
$20M USD ($25M CAD) Revenue Estimate – This would be a significant acceleration in the revenue growth rate and I think it will be driven majority by the Programmatic Launch that I don’t think can be understated when it comes to the ad rate on the back of monetizable impression growth within their network. This will make them less reliant on the direct sales model but it will still be an effective tool for bringing in new clients into the network. They are seeing it currently, in their latest update stating that they have had to bring in additional help in Q4 alone because the phone is ringing off the hook so much to onboard new clients on.   There is an element here that a lot of initial programs run in Q4 in a post iOS14 world could lead to significant share gains into FY22.
 
$4.5M USD ($5.5M CAD) EBITDA Estimate – Over time the shift to Programmatic should cause a slight decline in gross margin but a significant increase in the EBITDA margin as it is much more scalable than the direct sales model. This is one of the few tech companies that expense the majority of their R&D of their costs through the income statement instead of putting it on the balance sheet. So, the core profitability of the business model is in a much better position than it would seem. With that said though, with a growth rate approaching 100% YoY they should be funneling as much money as possible back into growth to scale the business because the power of these aggregators of attention platforms just increases so much with scale.    
 
 
On Valuation
 
So looking to FY22 Kidoz Inc. is trading 3x Sales w net Cash on the balance sheet w FY22 growth rate of 60-70% with an accelerating growth rate.

When you consider the other pure platform aggregators in the AdTech such as The Trade Desk at 28x Sales doesn’t look that expensive…
But I think there is a much better comp business out there. That would be SuperAwesome the other pure play SDK <13 age ad engine that got taken out by Unity the developer of Fortnite for a hefty premium rumored to be around 8-10x Sales.  These are incredibly strategic assets within walled gardens and Unity acquired SuperAwesome to monetize their internally generated content. This makes Kidoz the SDK for all 3rd party Developers strengthening their strategic position at a fraction of the multiple.
 

If I put a comparable 8-10x Sales figure on the business I get to a valuation target of 1.50-1.90/share or 193% upside at the midpoint.
 
The big thing here is the out year growth and the acceleration of the growth rate going into FY22. I think there is a glide path here that they could grow this business 30-50% for the next 3-5 years regardless of the macro environment hence why it should trade at such a premium valuation. This business will never trade cheaply on a TTM valuation because I think it is way too strategic of an asset that a larger player in the industry would just come snap it up and take it private.
 

1) Zoomd Technologies Inc. ( Zoomd Technologies Ltd | V.ZOMD Stock Message Board & Forum | Stockhouse )
 
2) Premier Health of America Inc. ( Premier Health Of America Inc. | V.PHA Stock Message Board & Forum | Stockhouse )
 
3) Route 1 Inc. (Route1 Inc. | V.ROI Stock Message Board & Forum | Stockhouse )
 
4) Kidoz Inc.

5) Tomorrow…. We will have to wait and see!

 
To be continued… 5/5 coming tomorrow
 
 

VERY LONG