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

Key Investment Rationales:

• Strong Preliminary FY21 performance: For FY21, the company reported its total revenue of USD 12.43 million, grew 74% on y-o-y basis. The growth was driven by an increase in company’s presence across new 58 countries in FY21, which resulted in reaching a significantly higher number of end-users. Notably, the company reported its FY21 adjusted EBITDA of USD 1.50 million, considerably higher than USD 0.77 million in FY20.

• Exuberant quarterly performance: In Q4FY21, the company delivered 648 million monetized impressions, reflecting 88% growth over Q3FY21. On the other hand, KIDZ reported 250 million video views during the period, surged 107% on q-o-q basis. During the quarter, the company reported that its customers played more than 334 million rich media ads, which is 96% higher than Q3FY21. Being a mobile AdTech developer company, an increase in the number of views and media consumption would contribute to the company’s top-line growth. Notably, the company reported that its Paid App Installs from the Kidoz App Promotion campaigns business line grew 35% on y-o-y basis.

• New product launch: Recently, the company launched its new product named ‘Kidoz Connect’, which is a unique programmatic solution providing 'review & monetize' technology to enable open market to add sourcing at a large scale. Moreover, it creates a safe pipeline of advertising sources to be connected to the Kidoz Contextual Ad Network and channeled with the thousands of apps currently utilizing Kidoz monetization technology. This is an automated advertising technology that would provide the client to reach across 300 million users through a single point of integration. This is expected to add value to the company’s product portfolio.

• Positive outlook supported by strong industry demand: The company is identifying new opportunities to increase revenues and advance the monetization of the company’s global network. The group operates its core, child-directed media business along with newly launched products that service teens, parents, performance marketing advertisers, and safe-programmatic advertising through its Kidoz Connect solution. Notably, the size of the global digital advertising market is more than USD 400 billion, while with the continuous innovative product offerings, we believe the company is highly poised to take advantage of the opportunities coming from the sector.

• Surge in cash flows: In FY21, the company reported its cash flows from operations of USD 0.85 million, significantly higher than USD 0.25 million in FY20. This is impressive and is expected to support the overall liquidity of the firm.

• New targeted audience to support upcoming growth: The company is marking its presence across both the teens (13 to 19 age group) and parents' markets. Furthermore, the company is planning to provide gaming and app environments for its targeted consumers. The above is expected to increase the company’s consumer base, which is impressive.

Risks associated with the business:

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 the company’s overall performance. Moreover, a change in consumer preference might lead to a fall in lower media views and would subsequently dampen the company’s top-line.

Q4FY21 Financial Highlights:

Source: Company Reports, Analysis by Kalkine Group. 

• Elevated Revenue: KIDZ announced its fourth quarter result, wherein the company posted total revenue of USD 5.88 million in Q4FY21, depicting a 68% on y-o-y basis over Q4FY20. The growth was driven by the increasing traction across the company’s publisher reach coupled with the increase in advertising customers due to higher advertising budgets with the Kidoz safe mobile network.

• Increasing in input costs: In Q4FY21, the company reported a 46% y-o-y surge in Selling & marketing expenses at USD 0.17 million, due to an increase in the sales and marketing team in order to cater to a higher number of clients. Moreover, the company reported higher salaries, wages, consultants, and benefits expenses of USD 0.18 million v/s USD 0.14 million in pcp, due to an increase in the overall headcount of staff.

• Decline in General & administrative expenses: KIDZ reported its General and administrative expenses of USD 0.13 million, declined from USD 0.15 million in pcp. The slide was primarily due to a decrease in fees paid to the professional advisors.

• Higher net income: The company reported its net income of USD 0.99 million in Q4FY21, surged from USD 0.75 million in Q4FY20, due to strong growth in revenues, lower general & administrative expenses, partially offset by higher selling & marketing expenses.            

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 65.96% stake, Pendinas, Ltd. and Williams (Tryon M) are the major shareholders in the company with an outstanding position of 21.18% and 12.57%, respectively.

Source: REFINITIV, Analysis by Kalkine Group.

Valuation Methodology (illustrative): EV to Sales based metrics

Analysis by Kalkine Group

*% 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: 

The company holds a prominent position within the safe contextual mobile advertising segment, and with the growing mobile users across the globe, we believe the demand for safe advertising opportunities is likely to remain elevated in the coming days. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Activision Blizzard Inc, Electronic Arts Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of KIDZ at the closing price of CAD 0.475 on March 08, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 08, 2022). Analysis by Kalkine Group

*Recommendation is valid on March 09, 2022, price as well. 

Technical Analysis Summary

Disclaimer

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