frc-logo

Kidoz Inc.

YouTube & Meta's Q1 Ad Surge Signals Bright Prospects for 2024

Published: 4/30/2024

Author: FRC Analysts

YouTube & Meta's Q1 Ad Surge Signals Bright Prospects for 2024  - Main Image
*See important disclosures at the bottom of this report

Sector: AdTech | Industry: Advertising

Rating and Key Data
MetricsValue
Current PriceCAD $0.23
Fair ValueCAD $0.74
Risk4
Week RangeCAD $0.10-0.36
Shares O/S (M)131
Market Cap. (M)CAD $30
Current Yield (%)N/A
P/E (forward)N/A
P/B4.2
  • In 2023, revenue dropped 12% YoY, falling 8% below our estimate due to clients delaying or not renewing ad campaigns. 
  • However, gross margins were very close to our estimate, and G&A expenses were 4% lower than our estimate. 
  • EPS declined YoY, from -$0.01 to -$0.02, falling short of our estimate of -$0.01.
  • The downturn in revenue was partially attributable to a shift in sales strategy within the U.S. KIDZ pivoted away from relying solely on resellers to prioritizing direct sales, a strategy management believes will boost revenue and margins. In their latest news release, management indicated that “2024 will be a strong year of growth”.
  • KIDZ's ad network spans 5,000+ apps, reaching 400M kids. Prominent brands such as McDonald's (NYSE: MCD), Disney (NYSE: DIS), Lego, Kellogg's (NYSE: K), and Nintendo (TYO: 7974), advertise on KIDZ’s platform. Management has indicated that their newly launched ad platform, Prado, designed for teens and parents, is gaining momentum.
  • We expect a strong year ahead for global digital ad spending. In Q1-2024, major digital ad platforms, YouTube (NASDAQ: GOOGL), and Meta (NASDAQ: META), saw their ad revenue rise by 20% and 27% YoY, respectively. Per eMarketer, global digital ad spending will grow by 13.2% this year, up from 10.7% in 2023, and 9.1% in 2022. From 2020 to 2023, KIDZ's revenue growth outpaced global digital ad spending growth by 2.1x on average.
  • KIDZ’s forward EV/R is 1.2x vs the sector average of 3.0x, implying a 60% discount. 

 

Key Financial Data (FYE - Dec 31) (US$) 2023 2024E 2025E
Cash 1,469,224 744,407 1,254,159
Working Capital 3,220,646 2,847,634 3,779,553
Total Assets 11,807,080 11,776,902 13,295,782
LT Debt to Capital 0.00% 0.00% 0.00%
Revenue 13,326,824 16,875,000 20,812,500
Net Income -2,012,056 -951,212 413,638
EPS -0.02 -0.01 0

KIDZ Price and Volume (1-year)

 

  YTD 12M
KIDZ 12% 12%
TSXV 5% -4%

*See the bottom of this report for important disclosures, ratings, and risk definitions. All figures in US$ unless otherwise specified.

Financials 

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

 

Sector Outlook

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

FRC Projections and Valuation

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.

 

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

Appendix 

 

Rating and Key Data
MetricsValue
Current PriceCAD $0.23
Fair ValueCAD $0.74
Risk4
Week RangeCAD $0.10-0.36
Shares O/S (M)131
Market Cap. (M)CAD $30
Current Yield (%)N/A
P/E (forward)N/A
P/B4.2