Kidoz Inc. (TSXV: KIDZ) 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 in FY2021, with USD 12.4 million compared to USD 7.1 million in pcp, owing to an increase in Ad tech advertising revenue (USD 12.2 million vs USD 6.7 million pcp). The increase in total revenue over fiscal 2020 is due to growing publisher reach and increasing advertising customers and advertising budgets within the mobile network. On top of all, the company is witnessing robust growth in its revenues on the sequential basis, which is a big positive.

• Strong cash from operations: In FY 2021, the company reported elevated cash from operating activities which stood at USD 0.85 million, compared to USD 0.25 million in the prior year. An increase in the cash from operations is mainly due to higher sales and increase in account receivables.

• Increasing capabilities and significance in the market: The company is working on 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's 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.

• Healthy outlook: One of the key factors driving growth is the ever-increasing dominance of mobile usage and mobile entertainment across all age groups. Mobile is consumers' preferred choice for entertainment and the company provides a safe and high-performance platform to reach hundreds of millions of consumers on their mobile devices.

• Healthy liquidity profile: The company's current ratio was 2.06x in FY2021, compared to 1.78x 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 FY 2021 (Expressed in United States Dollars)

Source: Company Filing 

• Higher Revenue: In FY21, the company reported higher revenues, which increased by 74.5% to USD 12.4 million compared to USD 7.1 million in pcp. The growth was supported by higher income from Ad tech advertising revenue.

• Gross Profit surged to USD 5.3 million in the reported period, higher than USD 3.3 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 5.2 million against USD 3.3 million in pcp.
  

• Net Loss: Primarily on the back of higher operating expenses the company clocked, along with elevated deferred taxation expense, it reported a net loss of USD 0.19 million against a profit of USD 0.10 million in pcp.
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 66.19% 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 9.28%, and ownership of the strategic entities stood at 57.23%.

Valuation Methodology (Illustrative): EV/ Sales based Valuation Metrics

*% 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

Kidoz's growth, profitability, and sales all reached new highs in fiscal 2021. The Company's steady and growing rate of growth may be ascribed to powerful market and consumer dynamics. The ever-increasing domination of mobile usage and mobile entertainment across all age groups is one of the primary drivers driving development.

The company is continuously investing heavily into the systems and technology to increase its network reach and solidify the position as the market leader. Furthermore, it developed new tools for enabling the growth of performance campaigns and has now expanded its offering to include both the teens (13-19) and parents' markets, which is a key positive.

Hence considering the aforesaid facts and valuation, we recommend a 'Speculative Buy' rating on the stock of KIDZ at the last closing price of CAD 0.50 on April 12, 2022. Additionally, the 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 April 12, 2022). Source: REFINITIV, Analysis by Kalkine Group  

 Technical Analysis Summary

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