Tiny Ltd V.TINY

TD Reaction

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WeCommerce Holdings Ltd.

(WE-V) C$11.92

Q2/21 Results: Apps Strong; Themes Temporarily Soft

Event

WeCommerce reported Q2/21 results last night.

Impact: SLIGHTLY NEGATIVE

Revenue in line; EBITDA misses. Revenue of $9.5mm was in line with estimates of $9.3mm (TD)/$9.8mm (consensus). EBITDA of $2.9mm missed expectations of $3.8mm (TD)/$3.9mm (consensus) due to a softer themes environment, purchase price accounting on Stamped's deferred revenue, and additional costs as it grows and continues its CFO search.

Apps perform better than expected. The Stamped acquisition brought in $3.9mm, well above our $3.2mm estimate. Subscription revenue, excluding the recent acquisitions, grew by 10% y/y in cc. This is lower than the apps, themes, and domains revenue growth we estimate Shopify generated in Q2/21. This is largely due to the continued impact of pricing changes made to one of WeCommerce's most popular apps in Q4/20. Aside from that, WeCommerce continues to see strong metrics in that app with lower churn and higher LTV.

Themes activity already picking up. Themes declined 8% y/y in cc off a strong prior-year quarter. The soft themes performance was partly due to merchants pausing themes purchases as they waited for the new Shopify architecture to roll out. Themes sales have since picked up in the last 10 days after the new architecture was released. Management expects stronger sales in Q3/21 and Q4/21, as merchants prepare their stores for the holiday shopping season.

Acquisition pipeline remains active. The majority of the pipeline continues to be filled with apps targets. Management estimates that the pipeline still contains more than $100mm of revenue. Although some valuations have risen, management continues to be in active discussions with a number of founders. If we factor in the Archetype acquisition and the equity deal in July, we estimate that WeCommerce has $36mm of net debt, or 1.9x net debt/EBITDA. If we assume that the company acquires companies with similar multiples and EBITDA to the recent acquisitions, we estimate that it can deploy another $29mm towards acquisitions.

TD Investment Conclusion

We are maintaining our BUY rating and $22.00 target price. We continue to believe that the Stamped and Archetype acquisitions demonstrate the significant value available in the Shopify ecosystem.