Record-Breaking Q4 Blows Past Our Expectations

Metrics	Value
Current Price	CAD $0.24
Fair Value	CAD $0.64
Risk	4
52 Week Range	CAD $0.10-0.36
Shares O/S (M)	131
Market Cap. (M)	CAD $32
Current Yield (%)	N/A
P/E (forward)	N/A
P/B	3.9

Report Highlights

KIDZ is up 100% since our Q3 update report in November 2024.
Yesterday, KIDZ reported unaudited Q4-2024 financial results. Q4 revenue increased 23% YoY to $7.4M, the highest quarterly revenue in the company’s history, surpassing our estimate by 22%. Revenue growth was driven by advertisers launching multiple global campaigns on the KIDZ platform during the quarter.
We were pleasantly surprised by the strong Q4 rebound. Despite management's upbeat guidance, we were cautious in our forecast, given 2024 (9M) revenue was down 10% YoY.
Gross margins increased 23 pp YoY to 56%, beating our estimate by 10 pp. EPS rose 489% YoY to $0.015, significantly exceeding our forecast of $0.008

In 2024, YouTube (NASDAQ: GOOGL) and Meta (NASDAQ: META) reported 8% and 22% YoY ad revenue growth, respectively, in 2024, compared to 5% for Kidoz.
Major digital ad companies saw average YoY revenue growth of 14% in 2024, with consensus forecasts predicting 10% revenue growth in 2025. We are modeling 7% revenue growth for KIDZ in 2025.
In 2025, global digital advertising spending is expected to continue growing, though at a moderated pace compared to the previous year, primarily driven by economic uncertainty, and stricter data privacy laws. We believe the recent stricter ad regulations introduced by the U.S. COPPA 2.0 will push advertisers toward companies like KIDZ, which specialize in kid-friendly advertising.
KIDZ’s forward EV/R is 1.3x vs the sector average of 2.9x, a 55% discount. With 2024 revenue and EPS surpassing our expectations, we are revising our 2025 projections higher.

KIDZ Price and Volume (1-year)

	YTD	12M
KIDZ	57%	68%
TSXV	0%	11%

Financials

Q4-2024 revenue was up 23% YoY, beating our forecast by 22%; note that 2024-9M revenue was down 10% YoY

Gross margins increased 23 pp YoY to 56%, driven by higher direct vs reseller sales, and streamlined campaign execution, beating our estimate by 10 pp

G&A and other expenses as a percentage of revenue were relatively flat

Driven by higher revenue and gross margins, EPS rose 489% YoY to $0.015, exceeding our forecast of $0.008

Cash from operations and free cash flows were also up significantly. Healthy balance sheet, with no debt

Sector Outlook

Global digital ad spending in 2024 grew by approximately 13%, compared to 12% in 2023. In 2025, global digital advertising spending is expected to continue growing, though at a moderated pace (9-11% per consensus forecasts) compared to the previous year, primarily due to economic uncertainties, and increased data privacy regulations. We anticipate AI-driven personalization and programmatic advertising to be the primary drivers of growth in this sector. Additionally, we believe that mobile advertising, along with video and social media platforms, will remain the preferred ad channels.

It is estimated that global digital ad spending will grow at a CAGR of 9.5% from 2025 to 20234 (Source: Precedence Research)

During this period, North America is expected to lead with the highest market share of 37.15%

FRC Projections and Valuation

Historically, we estimate that KIDZ's revenue growth outpaced global digital ad spending growth by 1.2x on average

As 2024 revenue was significantly higher than expected, we are raising our 2025 revenue and EPS forecasts

As a result, our DCF valuation increased from C$0.75 to C$0.79/share

KIDZ remains one of the most undervalued stocks on our list of comparables, with a forward EV/R of 1.3x (previously 0.9x), significantly lower than the sector average of 2.9x (previously 3.0x)

As a result of our higher 2025 revenue forecast, our comparables valuation increased from C$0.41 to C$0.50/share

We are reiterating our BUY rating, and raising our fair value estimate from C$0.58 to C$0.64/share (the average of our DCF and comparables valuations). KIDZ's Q4 performance dramatically exceeded expectations, highlighted by record revenue, and significant margin expansion, signaling strong momentum and a clear advantage in the evolving kid-friendly advertising landscape.

Risks