Kidoz Inc (TSXV: KIDZ) is 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 a platform of interactive games for families and children. 

Key Investment Highlights

• Solid Growth in Topline: For 9MFY21, it reported exponential growth in its income, which stood at USD 6.5 million, compared to USD 3.6 million in pcp, driven by a surge in income from Ad tech advertising revenue (USD 6.3 million v/s USD 3.3 million in pcp). The above indicates improved demand dynamics supported by solid growth from extensive mobile advertising coupled with the company's focus on contextual content.

• Encouraging Quarterly Performance: In Q3FY21, the company reported that it played more than 170 million rich media advertisements, which is ~70% higher than Q2FY21. The continuation of this trend would support the company's upcoming performance. Notably, KIDZ reported a 50% q-o-q growth in the paid app installs from its new Kidoz App Promotion campaigns, a significant positive.

• New Targeted Audience to Support Upcoming Growth: The company is marking its presence across teens (13 to 19) 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.

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

• For Q3FY21, the company reported higher revenue of USD 2.815 million than USD 1.920 million in pcp. The growth was supported by higher income from Ad tech advertising revenue.
• Gross profit surged to USD 1.226 million, higher than USD 0.915 million in pcp, partially offset by higher cost of sales thanks to increased income.
• KIDZ witnessed a surge in general and administrative costs and salaries, wages, consultants and benefits, and selling and marketing expenses.
• Hence, it reported a net loss of USD 0.075 million v/s a net profit of USD 0.117 million in pcp.

Valuation Methodology (Illustrative): EV/ Sales

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.

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). 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 0.62 on December 24, 2021. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on December 24, 2021). Source: REFINITIV, Analysis by Kalkine Group  

*The reference data in this report has been partly sourced from REFINITIV.

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