Q2 Revenue Softens, H1 Hits Record; Tailwinds Ahead

• After reporting record Q1 revenue (up 53% YoY), Q2 revenue pulled back 2% YoY, missing our forecast by 4%, primarily due to reduced client ad spending amid U.S. tariff uncertainty, and economic and trade concerns.
• Higher gross margins were offset by lower revenue and increased G&A expenses, which drove down EBITDA, and net losses widened in Q2. Excluding R&D costs, the company remains profitable. 
• In H1-2025, Kidoz reported record revenue of $5.17M, up 21% YoY. By comparison, major platforms YouTube (NASDAQ: GOOGL) and Meta (NASDAQ: META) saw ad revenue growth of 12% and 19%, respectively. Kidoz’s adjusted EPS (ex-R&D) increased 46% YoY.
• Balance sheet remains healthy, with zero debt.

• Since Q2, we believe greater clarity on U.S. tariffs, with new agreements signaling lower, more consistent rates across most countries, has boosted advertiser confidence to resume marketing efforts.
• Australia has expanded its under-16 social media ban to include platforms such as YouTube, TikTok, Instagram, Facebook, Snapchat, and X, with penalties of up to A$50M for non-compliance. This shift drives demand for safe, age-verified digital advertising solutions. Kidoz, with its COPPA (US) and GDPR-K (EU) compliant mobile gaming network, offers advertisers a privacy-first platform to engage children safely without relying on personal data. 
• Sector consensus forecasts revenue growth of 11% in 2025, down from 14% in 2024. Since our May report, average EV/Revenue rose 3% to 2.74x. Kidoz trades at just 1.05x, a 62% discount. We continue to expect record revenue and EPS in 2025.

Price and Volume (1-year)

Financials

Record H1 revenue of $5.17M, up 21% YoY; EPS (excluding R&D costs) up 46% YoY. Q2 revenue was down 2% YoY (Q1: up 53% YoY), missing our estimate by 4%

Revenue base further diversified, with Rest of Europe and Asia contributing 21% (vs. 8% in Q2-2024), reducing reliance on North America and Western Europe

Gross margins increased 4 pp YoY to 55%, driven by higher direct vs reseller sales, and streamlined campaign execution

G&A and other expenses rose 54% YoY, mainly due to one-time employee bonuses tied to record revenue

Higher gross margins were offset by lower revenue and increased G&A, driving down EBITDA and EPS. Balance sheet remains healthy, with zero debt

Can raise up to C$454k from in-the-money options

FRC Projections and Valuation

Per industry consensus, global digital ad spending growth is anticipated to slow to approximately 8% in 2025 vs 10% in 2024. The deceleration reflects the lack of major cyclical events (e.g., elections, global sporting events) that typically drive ad spend, as well as ongoing economic and trade uncertainties, and tighter data privacy regulations.

Historically, we estimate that KIDZ's revenue growth outpaced global digital ad spending growth by 1.6x on average. As Q2 fell short of expectations, we are lowering our revenue and EPS estimates

As a result, our DCF valuation decreased from C$0.91 to $0.87/share

Outlook unchanged since May 2025: sector revenue growth is 11% in 2025 vs 14% in 2024, while average EV/Revenue rose 3% to 2.74x

KIDZ is trading at 1.05x forward EV/Revenue (previously 1.39x), well below the sector average of 2.74 (previously 2.67x

Our comparables valuation declined ($0.54 to $0.53/share) due to our lower revenue estimate, partially offset by a higher sector multiple

We are reiterating our BUY rating, and revising our fair value estimate from C$0.73 to C$0.70/share (the average of our DCF and comparables valuations), reflecting lower revenue estimates. Despite a 2% YoY pullback in Q2 revenue due to tariff uncertainty and softer ad spending, Kidoz’s adjusted EPS remains positive, and H1 revenue grew 21% YoY. We believe clarity on U.S. tariffs and rising demand for privacy-compliant digital advertising support the company’s growth trajectory. 

Risks

We believe the company is exposed to the following key risks:

• Operates in a highly competitive space 
• Unfavorable changes in regulations
• Ability to attract publishers and brands will be key to long-term growth
• FOREX
• Reliance on digital ad spending trends, which can be cyclical or impacted by macroeconomic factors
• Changes in U.S. or global tariff policies that could affect client budgets
• Data privacy or security breaches could impact advertiser trust and platform reputation

Maintaining our risk rating of 4 (Speculative)

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