VerticalScope Holdings Inc T.FORA

TD Follow RBC

[retiredcf]

GREAT Q1 RESULTS, AND Q2 GROWTH LOOKS EVEN BETTER

THE TD COWEN INSIGHT

FORA shares have performed well YTD, but the stock continues to trade at less than half the valuation multiple from the time of its IPO, and significantly below where Reddit shares are valued. As revenue growth momentum continues to accelerate, we see significant incremental upside for the stock and it remains on our Conviction List.

Event: Q1/24 results.

Impact: POSITIVE

Our estimates have increased today on the back of both a very strong start to 2024 (Q1 beats on revenue/EBITDA/FCF detailed on page four), and favourable outlook commentary for Q2. Management expects both MAU growth and revenue growth (digital advertising and total) to be better on a Y/Y basis in Q2 than what we just saw reported for Q1 (MAUs +12%; digital ad revenue +26%; total revenue +14%). We are especially pleased to see the accelerating improvement in engaged users on VerticalScope's community online forums, as we believe this signals that authentic content on these sites remains relevant in a post- pandemic and post-GenAI world. Note that our forecasts do not yet include any assumption for the monetization of first-party data with GenAI LLM providers, despite our confidence that FORA will be able to emulate Reddit and several news organizations in this space at some point over the NTM (imminent deal seems unlikely).

Given the favourable momentum in FORA's business, and given that we now have a better public comparable in Reddit, we are increasing our target multiple to 9x EBITDA (equates
to 3.8x revenue), versus 8x EBITDA (3.4x revenue) previously. We continue to attach this target multiple to 2025E and then we apply a 5% time-value discount. Our target price increases to $15.00 from $12.00. The comp table in Figure 2 shows RDDT valued at over
7x 2024E revenue, so our 12-month target value expectation for VerticalScope is by no means excessive in our view. FORA has a longstanding track record of monetizing audiences on niche sites, and doing so very profitably with ~40% EBITDA margins and strong FCF generation. We believe this is a good company that would be trading at a much higher valuation if it was simply bigger with more float and more liquidity.