AcuityAds Holdings Inc.
(AT-T) C$2.58
Uncertainty Lingers Event
Q1/22 results.
Impact: NEGATIVE
Although results in the quarter were just a slight miss on the key items (revenue/ net revenue/Adjusted EBITDA) as outlined on page two, we characterize the quarter as negative largely related to the performance of illumin. Revenues generated by illumin as well as customer counts were down sequentially. We understand that Q1 is typically a seasonally slow quarter for advertising in general, but we had hoped for illumin to continue on its growth trajectory given that it is still in its early stages. That said, Acuity is making investments in its sales team where the benefit to financial results can take some time as the sales team ramps up. As such, management's messaging for revenue growth remains unchanged at 20-25%.
Given the slow start for illumin, we have deliberately kept our updated forecasts below management's range. Our forecast for revenue growth now stands at 15% this year, and as a result, our forecasts have come down. If the illumin platform performs much better than legacy programmatic DSP platforms, the investments in the sales team should flow through to increasing client counts as well as revenue growth both on a y/y and sequential basis. Until we see some evidence of sales picking up, we will err on the side of caution with our estimates.
TD Investment Conclusion
The valuation multiples for Acuity's peers continue to decline as sector wide multiple contraction continues (our comp table is in Exhibit 2), with the industry's leading TTD now trading at 13.3x 2022E EV/Revenue down from 19.4x in March 2022. As such, we have reduced our target multiple down to 2.5x from 4.0x previously, and we continue to use our 2022E estimates to account for the uncertainty on longer term forecasts. This has resulted in our target price coming down to $4.25 from $6.00 previously.
We maintain our BUY rating due to valuations. AT shares are down 15% today and now trade at just 3.5x/2.0x 2022E/2023E EV/EBITDA. Furthermore, Acuity has over $99mm, or $1.56/share, of cash on hand with some of that being deployed towards buybacks. At these levels, we believe the rewards outweigh the risks.