Q3 Preview: 83% Rev Growth w 112% EBITDA Growth…It's that time of the year again, time to lay out what to expect going into earnings season and lay out the case again why analysts are way behind the story. Time to load the boat here because this name is going much much higher.
See Attached for Link to Q2 Conference Call Recap
https://stockhouse.com/companies/bullboard?symbol=t.at&postid=30035269 Now let’s look forward;
Revenue TARGET: $31,700,000 – This works out to 83% growth YoY and 22% growth QoQ. Pretty darn impressive which should be driven by multiple growth drivers across all regions of the world with strong growth in both Managed and Self-Service business lines.
Large Contracts – keep in mind this Spring/Summer the company announced
FIVE large 7 figure contracts that would have been running in full force in the Quarter
totaling $13.4M. ($2M from Global CPG Company, $3.3M US CPG Company, $1.7M from Global Beverage Company, $1.4M US DTC Company & $5M from Global Hospitality Company). This gives you visibility into a significant portion of revenue for not only Q3 but building a backlog of business into the critical Q4 period.
Spain & LATAM Launch – On June 4
th they announced the launch of their decision technology platform into these Spanish speaking nations on the back of fully integrating their Adman acquisition last year and finally getting it relaunched into these markets.
Keep in mind, in Q2 EMEA/LATAM revenue was already growing 190% YoY and now you are going to get a full Q with this fully rolled out service. Growth rate in this region should continue to put up 100% YoY growth if not accelerate higher.
Connected TV & Streaming – On Q2 conference call talked about the parabolic growth they are seeing on connected tv platforms with growth being 800% YoY. This is where the ad market is going and they are crushing it here. Especially as more and more of these traditional cable providers start offering streaming services that are ad supported like Hulu from Disney or Peacock from Comcast.
Scaling New Customer Wins - Was highlighted in Q2 that Self-Serve growth was driven by new customer wins. Acuity has demonstrated time and time again that once customers come on board contract size and ad spend expands over time as they prove put the value of the platform and increase ad spend as much as 10x the initial contract size. Bringing on these customers in the Spring/Summer should bode quite well into back half of the year which is a higher ad spend period.
Self-Serve Platform Launch – Might be more of a Q4 story but this is going to be huge for them as they are currently in BETA with new customers and existing customers lining up to get its hands on this software. Sounds like a high-quality problem.
Profitability TARGET: $2,500,000 EBITDA – This works out to 112% EBITDA growth YoY and 136% EBITDA growth QoQ. It is all about reaching critical scale, and that >$25M revenue run rate per quarter is that critical level where you will start to see the EBITDA margin really start to expand. Just look back to FY18 Q4 when revenue was $33M and EBITDA margin was running 10%.
R&D Spend Normalizing – There was a lot of resources and capital put into the development of the new Self-Serve platform that was spent in 1H FY19 with $7M put into R&D spend. Well, its time to reap the benefit from this R&D spend. Management cited that the majority of the spend is behind them at this point so look for this R&D spend as a percentage of sales and on an absolute basis to normalize or come down.
No Additions to Sale Force – Management made a key acquisition last fall of a US sales force and it has showed up in results in a big way. I think its very critical that management has stated that they are satisfied and don’t see any further significant additions to their sales staff so you should see the expense plateau if not come down as a percentage of total sales especially into Q4.
Scale Scale Scale – I have already touch on this but I think its important to emphasize because its so critical. This ability to pull profitability down the income statement is driven by scale and the defense of their gross margin/take rate in the 45 – 50% range as the costs side normalizes as mentioned above.
Averaging 2H EBITDA margin at 10% I think is achievable and would result in 80% of annual EBITDA being generated in the next 2Qs. The Analyst Game The analysts are way behind the story similar to the end of 2016 and into 2017. They currently only have a revenue estimate for FY19 of $113.3M and FY20 of $126.70M and a 3.37/share price target implying 150% upside.
With that 150% upside scenario I still think they are WAY BEHIND the story. Programmatic Ad Market Growth Rate – Sector is growing 24% YoY and Acuity Ads is putting up organic growth of 100% YoY. How can these analysts honestly give an out-year revenue estimate of 12% YoY Revenue Growth?
What are the looking at…they are just wrong. Valuation Target – If I look at the direct comparison on the NASDAQ – The Trade Desk trades at 10.5x Net Sales on FY20 numbers with a 30% growth rate. My estimate for FY 20 revenue is $200M relative to analysts at $126.70M. So on my numbers Acuity trades at 0.65x Net Sales on my FY20 numbers with 50% growth or 1.0x Net Sales on FY20 Analysts numbers. Or looking at it another way their
underwhelming 3.37/share price target would only be 1.60x Net Sales on my numbers or 2.5x Net Sales on analyst numbers.
Price target has to go much much higher. I get it, the stock got played on the back of the bought deal at 1.55/share and the brokers had to blow out their shares to go chase the next deal but that is what creates the opportunity as the shares have been churned through.
Projecting Out The back half of this year into next year is the inflection point, this is when you will start to see the cashflow beginning to come in on the back of increased EBITDA margins on the back of reaching that level of critical scale reaching $100M+ revenue run rate.
So, I have them generating $145M Revenue & $12M EBITDA in FY19 growing to $200M & $20M EBITDA in FY20. With the top line being driven by strong organic growth from geographical expansion/adoption and significant client/ad spend growth from the roll out of their new self-serve platform.
If I am deeply conservative and use a 2-3x Net Sales FY20 Revenue figure I get to a target price range of 4.00 – 6.00/share or 5.00/share at the midpoint on a 50,000,000 share count gets me to an upside scenario of 270% upside as my base case. The stock hit a high of 5.40/share in 2017…. My price target doesn’t seem so crazy anymore now does it. The valuations in these small cap tech names with superior growth rates relative to their larger NASDAQ growth peers have been blown out to the point where they trade at 0.10x the value of these larger names. Time to venture down market cap. Cornerstone of my high growth, Canadian small cap tech portfolio NameSilo Techonologies – URL.ca AcuityAds Holdings – AT.TO Bewhere Holdings – BEW.V Bluerush Inc. – BTV.V Urbanimmersive Inc. – UI.V LONG