With all this noise around Facebook, data mining and the debate of duty of care around advertising companies I just keep coming back to Yoo.v, I love the ad business in general and betting on the pipeline and infrastructure of digital adverting is such a better way to play it. Throw in the secular shift to cloud based services and we got a multi bagger here.
 
Q4 numbers are going to be huge. You don’t have to listen to me, management already tipped their hand in Q3 MD&A on pg 10.

As at November 17, 2017, the Company had a cash balance of $1,363,126 and working capital of $2,068,335.”

 
So half way through Q4 their cash balance was up call it $500,000 vs end of Q3 when if you look at Operating Cashflow generated in the first 9 months of the year of $415,000. EBITDA generation is huge, and it is all coming from one place…Advertising cloud business.  Here’s how I see Q4;
 
Revenue

Its all about Advertising cloud. After 4 straight Qs of accelerating growth it will be hard to top 150% YoY growth in Q3 but on a pure dollar basis it is going to knock it out of the park with Q4 being so seasonally strong.
 
This is a US growth story, with 88% of its advertising cloud revenue coming from the US which grew 124% YTD through Q3.  With 75% of the total addressable market being ex. North America the untapped growth potential is huge here.
 
If I look to 2016 Q4 Ad revenue it was up 58% QoQ over Q3. If I use that same number to adjust for seasonality of Q4 2017 ad revenue estimate I get to a 2M revenue figure or up 147% YoY. I like to be conservative so even if I assume only 100% growth YoY I still get to 1.6M in revenue.   
 
Consolidated revenue estimate of 2.5M – 3.0M in revenue up 75% YoY with growth driven by the Advertising cloud.
 
Profitability

Cost model was inflated in Q3 to one-time severance costs we should see a normalization in Q4 all with mid to low 90% gross margins and EBITDA margin expansion the operating leverage is huge here.
 
With the restructuring costs announced in Q3 managements has demonstrated cost discipline to expand margins as the inherent operating leverage in a cloud based platform business model begins to flow to the bottom line given 4 consecutive Qs of positive EBITDA.
 
Looking for 25% EBITDA margin (5 consecutive Qs of expanding EBITDA on both a $ and % basis) in Q4 which would equate to $687,500 in EBITDA or up 330% YoY.
 
 
Addressable Market for Ad Business

Management talks about gaining share and its target of obtaining 10% market share in its B2B Ad business. With a North American TAM of 250-300M and a current untapped global TAM of 1.0B the runway is huge.
 
With a client list that boast many Fortune 500 companies that are global in nature they already have the relationships established to rollout and expand pre-existing relationships globally especially as the broadcasting industry continues to consolidate.
 
On Valuation
 
With net cash on the balance sheet and the inherent operating leverage this is where things get interesting.  Projecting out for 2018 of 10.8M in Revenue and 3.1M in EBITDA, using a conservative 10-12x EBITDA multiple given the stability of client base and revenue stream gets me to a target price range of 0.50 – 0.60/share or 0.55/share at the midpoint or 83% upside on 2018 numbers alone.
 
Crazy that as the stock price has appreciated the fundamentals have improved at a greater rate letting you be able to buy the stock today at a cheaper valuation even though the stock price is higher.
 
(I think there is upside to both valuation multiple given the staggering revenue and EBITDA growth these guys are putting up if you start projecting beyond 2018 to 2019 – 2020)
 
Has a real AT.V feel from Sep 2016 – Mar 2017 when it went from 1.70 to 5.00/share as people discovered an unknown ad based name. Big difference, the business model and resulting margins that YOO.V generates is a lot more defendable than AT.V programmatic model.
 
 
LONG getting LONGER BEFORE Q4 Numbers