Mathieu Martin - Stocks and Stones earnings preview Illumin, formerly AcuityAds, is an adtech platform and a poster child for the COVID frenzy in Canadian microcaps, followed by a harsh return to reality. As the stock ran up to over $33 per share in early 2021 ($1.8 billion market cap), insiders cashed in on huge gains, and the company subsequently failed to deliver meaningful results. Illumin lost 95% of its value over the next three years while it changed its name and delisted from NASDAQ.
Simon Cairns was hired as the company's new CEO in March 2024 to rethink the strategy and return Illumin to growth and profitability. I met him last month and was very impressed by his background.
The thesis here is fairly simple. A few years ago, the previous management moved away from managed services to develop a self-serve platform for its clients. By trying to migrate clients to the self-serve platform, it cannibalized its managed services business. The result is that you had pretty much flat revenues over the last five years while self-serve grew and managed services declined. Oh, and the company went from 15-17% EBITDA margins in its good years (2020-2021) to 1% last year.
The new CEO's message is that both sides of the business are viable and present attractive growth opportunities and margins. It shouldn't be one at the expense of the other. Both can coexist and grow together. I think there are two ways to win here: 1) the company returns to growth, or 2) the company can't grow and starts cutting its bloated cost structure to get back to meaningful profitability. Either way, the valuation appears reasonable at 0.4x EV/Revenue (LTM). Assuming the company could return to a 15% EBITDA margin, the stock would be trading at a pro-forma EV/EBITDA of 2.5 times. Lastly, the balance sheet is pristine, with over $50 million in cash and no debt.
The company will report on November 8 before the market opens, and I'll be looking for a return to growth and improved profitability.