November 9, 2023
illumin Holdings Inc.
Ongoing Refinement in the Go-to-Market Strategy
Our view: Following mixed Q3/23 results and downward revisions to our revenue and adjusted EBITDA forecast, our price target decreases from $3.00 to $2.50.
Key points:
• Executing on a healthy illumin pipeline. illumin has not been immune to industry headwinds that have included concern around the potential impacts of evolving privacy controls, a choppy digital ad market, macro uncertainty, greater competitive intensity within ad tech and higher bond yields. At 0.4x FTM EV/net revenue (versus an average of 1.6x for select DSP and SSP peers excluding The Trade Desk), we continue to believe the stock is more fully pricing in these headwinds. With what we believe is improving illumin traction, execution and visibility alongside a recalibration of profitability expectations, we see current levels as an attractive entry point with exposure to any potential cyclical improvement in digital advertising through 2024.
• Mixed Q3/23 results slightly below forecast. Revenues and adjusted EBITDA were $29.6MM (+2.4% YoY) and $0.2MM versus our estimates of $30.4MM and -$1.8MM (consensus is $30.5MM and $0.1MM). Net revenue was $13.9MM versus our estimate and consensus of $14.5MM. illumin revenues were $20.0MM in Q3/23, representing 68% of total revenue and up +52% YoY versus $13.2MM in Q3/22.
• Ongoing refinement in the go-to-market strategy. illumin self-serve revenues increased +325% YoY to $5.1MM in Q3/23 with the number of self-serve clients up +368% to 206 versus 44 in Q3/22 and 173 in Q2/23. illumin self-serve annual run-rate revenues reached $25MM, with an expectation of exiting 2023 at a higher level. Management is fine-tuning its go-to-market strategy with a narrower focus on clients with: (i) healthier media budgets rather than the addressable web (a smaller component of the budget); (ii) higher probability of spend on the platform with increased spend over time; and (iii) a lower cost to serve. This refinement was reflected by the moderation in new self-serve logos at 33 in Q3/23 versus 51 in Q2/23 and 17 in Q3/22. Additionally: (i) the pipeline of late-stage illumin self-serve deals was 316 as of Q3/23 (versus 245 in Q2/23 and 45 in Q3/22); and (ii) illumin demos were at 162 (versus 178 in Q2/23 and 81 in Q3/22).
• Other notables. (i) the search for a new CEO is ongoing and is expected to be completed in 2024; (ii) management indicated managed services will remain under pressure in Q4/23 (versus -15.5% YoY in Q3/23) due to macro headwinds and the shift to illumin self-serve; (iii) with $59.8MM in cash as of Q3/23, an NCIB was announced; and (iv) accretive and strategic M&A should continue to be explored.