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KIDZ Price and Volume (1-year)
Q2 revenue was down 12% YoY, missing our forecast by 10%. However, gross margins increased 6 pp YoY to 50%, driven by higher direct vs reseller sales, aligning with our estimate
G&A expenses were down 1% YoY, and in line with our estimate. As a result of higher gross margins, and lower G&A expenses, EPS improved, despite remaining negative
Healthy balance sheet, with no debt. No outstanding options are in-the-money
It is estimated that global digital ad spending will grow 12.2% this year (previously 13.2%), compared to 12.0% in 2023, and 9.3% in 2022
From 2021 to 2023, KIDZ's revenue growth outpaced global digital ad spending growth by 1.3x on average
As Q2 revenue was lower than expected, we forecast KIDZ’s revenue growth at 1% for 2024 (previously 13%), and 17% for 2025 (previously 15%), trailing global digital ad spending growth by 0.7x (previously 1.2x)
We are lowering our EBITDA and EPS estimates accordingly. As a result, our DCF valuation decreased from C$0.98 to C$0.83/share
KIDZ’s forward EV/R of 0.9x (previously 1.6x) is significantly lower than the sector average of 3.3x (unchanged)
Our comparables valuation decreased from C$0.52 to C$0.46/share, driven by our lower revenue estimate
We are maintaining our BUY rating, and adjusting our fair value estimate from C$0.75 to C$0.65/share (the average of our DCF and comparables valuations). While Q2 revenue fell short of expectations, we remain positive on the stock, given its steeply discounted EV/Revenue, and our robust outlook on the sector.
Maintaining our risk rating of 4 (Speculative)
We believe the company is exposed to the following key risks:
