Kidoz Inc (TSXV: KIDZ) is the company mainly engaged in creating consumer mobile software products and games. The firm is a kid-tech software developer and owner of the KIDOZ content discovery network. It emphasizes the development and marketing of platform consisting interactive games for families and children. 

Investment Highlights

• Solid Growth in Topline: The company claimed exponential growth in income for 9MFY21, with USD 6.5 million compared to USD 3.6 million pcp, owing to an increase in Ad tech advertising revenue (USD 6.3 million vs USD 3.3 million pcp). The above indicates improved demand dynamics supported by solid growth from extensive mobile advertising coupled with the company's focus on contextual content.

• Stellar growth in Media Ads and Paid Apps.: The company reported that it played over 170 million rich media advertising in Q3FY21, which is 70% more than in Q2FY21. The company's future performance would be aided if this tendency continued. KIDZ reported a 50% year-over-year increase in sponsored app installs from its new Kidoz App Promotion campaigns, which is a substantial gain.

• Availing Innovative Technology for gaining proficiency: The company is working on the technology that will allow it to access a wider range of app inventories, allowing it to expand its capabilities and market impact. It is actively recruiting the world's biggest and most successful apps to use its technology to monetize children as major audiences. When a new app uses the company's technology, its advertising inventory grows, and the advertising partners get more value.

• New Targeted Audience to Support Upcoming Growth: The company is marking its presence across teenage group (13 years to 19 years) and parents' markets. Furthermore, it plans to provide gaming and app environments for its targeted consumers. The above is expected to increase the KIDZ consumer base, which is impressive.

• Ventured in China: As AdTech markets continue to develop globally, hence the previously untouched regions are becoming available to global business. Kidoz has expanded its foothold in the lucrative Chinese market with recent cooperation announcements with TopOn and TradPlus, two renowned and popular mediation platforms in China. We think that the company will be able to extend its global capacity to advertise and offer secure media because of these agreements.

• Healthy liquidity profile: The company's current ratio was 2.93x in Q3 FY21, compared to 1.58x for the industry. This larger ratio against an industry indicates that the company's short-term obligations are growing at a slower pace than its resources to cover them, which is a good indication. Furthermore, the corporation is currently debt-free, showing that the balance sheet is unaffected.
  

Risks Associated with Investment: The company operates worldwide, which generates a risk that the exchange rate fluctuations may adversely impact cash flows. However, the business model is also exposed to regulatory risk such as licenses. The company is incurring higher input costs, which is leading to suppressed bottom-line, and the continuation of the above trend is likely to dampen its overall performance in the long run. 

Financial overview of Q3FY21 (Expressed in United States Dollars)

Source: Company Filing

• Higher Revenue: In Q3 FY21, the company reported higher revenues, which increased by 47% to USD 2.8 million compared to USD 1.9 million in pcp. The growth was supported by higher income from Ad tech advertising revenue.
• Gross Profit surged to USD 1.2 million in the reported period, higher than USD 0.9 million in pcp, partially offset by higher cost of sales thanks to increased income.
• Rise in Operating Expenses: The company witnessed a surge in general and administrative costs and salaries, wages, consultants and benefits, and selling and marketing expenses, as a result its operating expenses stood at USD 1.2 million against USD 0.8 million in pcp.
• Net Loss: Primarily on the back of higher operating expenses the company clocked, along foreign exchange loss, it reported a net loss of USD 0.07 million against a profit of USD 0.1 million in pcp.
  

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 72.03% of the total shareholding. Pendinas, Ltd. and Williams (Tryon M) hold the company's maximum interests at 21.18% and 12.57%, respectively. The company's institutional ownership stood at 15.28%, and ownership of the strategic entities stood at 57.07%.

Source: REFINITIV, Analysis by Kalkine Group 

 Valuation Methodology (Illustrative): EV/ Sales

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

In the recent past, the company saw encouraging growth in the Kidoz system, supported by the increased adoption rate amongst app developers, which is a key positive. Moreover, the mobile advertising ecosystem is expected to grow immensely in the coming years. It is expected to surpass USD 400 billion by 2023, and the company is highly poised to grab the related advantages coming from this sector.

The market forces are powering the company’s strategy to increase the strength as the enormous mobile advertising industry pivots towards contextual targeting which is at the core of Kidoz' technology. Advertisers, on a global basis, are shifting budgets to mobile advertising as television's reach continues its sharp decline.

Furthermore, the company is perfectly positioned with powerful technology in a booming market and management anticipates a record Q4 ahead, which would be a key positive. Hence considering the aforesaid facts and valuation, we recommend a 'Speculative Buy' rating on the stock of KIDZ at the last traded price of CAD 0.53 on January 18, 2022. 

One-Year Technical Price Chart (as on January 18, 2022). Source: REFINITIV, Analysis by Kalkine Group  

*Recommendation is valid on January 19, 2022, price as well. 

 Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Disclaimer

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