Analysts at Research Capital have reiterated a 'buy' rating and C$1.00 price target on Kidoz Inc. (TSX-V:KIDZ) after the firm's unaudited Q4 2022 financials came in broadly in line, validating their bullish view.
Kidoz reported Q4 net revenue of $6.8mln, just below the Research Capital analysts' estimate of $6.9mln, with the revenue growth driven by an ongoing shift from TV advertising to mobile advertising with the strong demand for kid safe contextual advertising.
The company reported a minor adjusted EBITDA gain of $0.7mln and its cash balance at the end of the quarter was $2.3mln compared to $1.8mln at the end of September 30, 2022.
In a note to clients, the analysts said: "We maintain a bullish outlook on Kidoz for several reasons. Firstly, the company is poised to benefit from a structural shift in digital advertising towards In-app advertising, which is expected to fuel growth in Kidoz's addressable market. Additionally, Kidoz's programmatic ad sourcing segment is well-positioned to increase its ad fill rate, thereby accelerating revenue growth.
"Moreover, Kidoz's SDK adoption is expected to increase due to regulatory amendments aimed at protecting children's online safety, further expanding its addressable market. We believe Kidoz's niche focus on the kids' business, coupled with changing regulatory policies, and the company's brand value/trust built over several years, provides it with a sustainable competitive advantage.
"Furthermore, Kidoz's partnership with high-profile brands, including Legos and Disney, underscores the company's robust brand value. Kidoz's SDK is installed in over 4000 apps worldwide, with a monthly active user base of over 300 million. The company's track record in delivering results for publishers is exemplified by the installation of Kidoz SDK in prominent apps like Hippo and Play Kids. We find Kidoz's current valuation to be attractive for long-term investors and strategic acquirers."
The Research Capital analysts concluded: "Overall, we are optimistic about Kidoz's growth prospects, driven by its well-positioned programmatic ad sourcing segment, regulatory tailwinds, and solid brand value/trust."
They added: "Our analysis suggests that the current macroeconomic headwinds, including the impact of the recession, inflationary pressures leading to higher interest rates, currency depreciation, and reduced advertising expenditure, may continue to affect investor sentiments in the near term.
"However, the long-term prospects for the stock price depend on several critical catalysts. These include increased visibility regarding the impact of programmatic ad sourcing and positive regulatory amendments on revenue growth, sustained positive EBITDA, and free cash flow generation. Furthermore, a potential re-rating of the overall digital marketing/ AdTech sectors may also drive long-term growth.
"Therefore, while short-term risks remain, we believe that these catalysts provide a compelling case for long-term investors to consider the stock. The company's ability to weather macroeconomic headwinds while generating consistent free cash flow and EBITDA growth would position it well for future success."