Q2 Recap – Revenue Doubling & Underrated Growth Path…Very strong Q from top to bottom and I still think that 30-40% Revenue Growth target has a high likelihood of being beat especially on the back of that near 100% growth in Q2.
From TikTok integration to >50% of their revenues coming from three hottest sectors of the economy right now in Ecommerce, FinTech & Gaming hard to see how growth slows down any time soon.
Revenue
$11,157,000 USD up 97% YoY
I wish they would breakdown revenues by Geographies to see how well they are doing in different regions but hard to complain about revenue doubling.
Couple Points I will Make;
1) Gross Profit Margins – Looks better than revenues – with gross margins expanding up to 33% up from 31% so on a net gross profit dollar basis, gross profit dollars were more than doubling up 109% YoY. That combo of gross margin expansion while revenue expands. Oh I love it! It’s a beautiful thing.
2) Great Acquisition Paying Off – I think we could be just at the beginning of a long road of consolidation for these guys. That small tuck in deal paid w shares at 0.95/share already looking real good. The ability to tuck in these niche ad products into a bigger platform and cross sell across client base. It is just so effective.
3) Self-Serve Line-up Launch in the Pipe – I have stated this before, I am so bullish on these ad platforms as they launch a full suite of these more self-serve, programmatic offerings. That massive double of revenue was before a full launch of the DSP, Performance Model & SaaS Product were fully rolled out to their entire client base. This is the inflective growth I am targeting and we still have it coming in the pipe with a full launch in the 2nd half of the year right as we ramp up for that critical Q4 period in AdTech
Profitability
EBITDA $1.3M USD from losses in Prior Year
Great number, only thing here is the A/R growth to fund the future growth of the business through this growth phase but they have the receivable financing in place to take care of this. We will have to watch the number in the future but it is peddle to the medal for growth in the meantime.
Some of the tech ventures like to say they are EBITDA positive but bury a bunch of costs in CAPEX for intangibles. Given they are launching their new software product ZOMD is going to be capitalizing a share of those costs rightfully so. That number in the Q was $411K USD, so even if we add back that figure to EBITDA they still generated close to $1M USD in EBITDA.
I focus real hard on one number and I would guide everybody take a hard look at this figure for these names that say they are growing, but are they growing profitably or just throwing money at the problem.
Net Gross Profit Dollars YoY : Net OpEx Expense Dollars YoY = $1,907,000:$257,000 = 7.42
(Added back Capitalized Development Costs to OpEx for a YoY Comparison)
Meaning for each incremental dollar of spending on a YoY basis they are adding 7.42 dollars of gross profit – You would be amazed at how many companies have a negative ratio in this metric and I think a positive ratio is so critical for these small cap tech businesses to really start to scale and to scale consistently.
Its all about getting more and more returns for each incremental dollar of spending and SPN is crushing it on this metric since they right sized the business and we are now really starting to see it take off.
Looking Forward
Full Year Revenue Guide Too Low
I keep coming back to that full year growth figure. 30-40% Growth figure implies a 2H 21 Revenue of $15-18M USD for a 6 month period in the seasonally strongest period for AdTech revenues right after they put up a $11M USD in Q2. I just think that is WAY WAY WAY too low.
Even if we assume that there was even some one-time revenue recognized in Q2 I think it wouldn’t be too aggressive to assume a 50%+ growth rate for 2H 21 with a Full Self-Serve launch which would bring the annual target closer to $38-40M USD.
Further Bolt- On Acquisitions
With such quick success with the last acquisition in February coming through so quickly integrated into the business shows they know what they are looking for from both a revenue/client basis and on a technology front.
Now that they are starting to reach some level of scale, they can continue to broaden that suite of offerings where they see opportunities to add. Especially if they can bolt on these sub scale players that may be struggling a bit at a great price and structure these deals with little cash up front and backend equity earn outs. Its such a win win.
Full Self-Serve Product Launch
Look no further than AcuityAds – AT.TO when they started to shift the narrative around a more Self-Serve offering, they saw their valuation multiple explode higher by something like 10x in the last 12 months. We are at that point right here for ZOMD….
What’s It Worth
I believe growth is going to continue at an accelerated pace given the inflective growth trajectory that having a full Self-Serve Offering and a much broader suite can offer and the growth figure in Q2 with a soft launch is just the start of it.
As a result, my NTM target for revenue is $40-45M USD if I am right on the growth trajectory which will be driven by the full Self-Serve Product launch in the back half of the year. On my NTM Revenue figure then it is currently trading for 0.75x EV/Sales!!!
You put a more realistic 4.0-5.0x EV/Sales valuation on it you are looking at 1.75-2.20/share target for 370% upside at the midpoint without even stretching the valuation. Heck, the company is using a >10x EV/Sales valuation for its peer group. Maybe I am being too conservative….
These small cap tech names especially at these inflection points in growth that have been left for dead in the past tend to look stupid cheap until they get discovered then all of a sudden you get a AcuityAds that just 10x’d on the back of Zero revenue growth.