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KIDZ Price and Volume (1-year)
*See the bottom of this report for important disclosures, ratings, and risk definitions. All figures in US$ unless otherwise specified.
Source: FRC/Company
2023 revenue was down 12% YoY, missing our forecast by 8%
Source: FRC/Company
Gross margins increased by 3 pp YoY to 37% vs our estimate of 38%
G&A and other expenses were up 8% YoY, primarily due to the expansion of R&D and sales teams, but came in 4% lower than our estimate
As a result of lower revenue, EBITDA, EPS, and FCF deteriorated, falling below our estimates
EPS declined YoY, from -$0.01 to -$0.02, falling short of our estimate of -$0.01
Healthy balance sheet, with no debt
No outstanding options are in the money
It is estimated that global digital ad spending will grow by 13.2% this year, up from 10.7% in 2023, and 9.1% in 2022
It is estimated that global digital advertising to children will grow from $6.1B in 2022, to $42.2B by 2030, reflecting a CAGR of 24% (Source: Global Information Inc.). Growth will be fueled by escalating screen time for kids, and technological advancements in targeting advertisements based on demographics and interests.
From 2020 to 2023, KIDZ's revenue growth outpaced global digital ad spending growth by 2.1x on average
In 2024 and 2025, we anticipate KIDZ’s revenue will grow by 27% and 23% respectively, outpacing global digital ad spending growth forecasts by 2.1x
As 2023 revenue was weaker than expected, we are lowering our 2024 revenue and EPS forecasts
We anticipate a turnaround to profitability in 2025
As a result, our DCF valuation declined from C$1.15 to C$0.94/share
Our 2024 revenue growth forecast of 27% is 2x the sector average
KIDZ’s forward EV/R of 1.2x (previously 1.3x) is significantly lower than the sector average of 3.0x (unchanged)
Using our 2024 revenue estimate (previously 2023), our comparables valuation increased from C$0.48 to C$0.54/share
We are maintaining our BUY rating, and adjusting our fair value estimate from C$0.82 to C$0.74/ share (the average of our DCF and comparables valuations). While 2023 revenue fell short of expectations, we remain positive on the stock, given our robust outlook on the sector, management’s conviction in their new sales strategy, and Prado’s initial success.
We believe the company is exposed to the following key risks:
