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 a platform consisting of interactive games for families and children.   

Key Highlights:

• Increased net losses: During Q1FY22, the company witnessed an increase in the comprehensive loss (net loss) of USD to 0.73 million as compared to the comprehensive loss of USD 0.34 million in Q1FY21. On account of the increasing cost of sales and operating expenses in the reported period (Q1FY22) as compared to the pcp, the group witnessed increased losses.

• Deteriorating profitability margins: During Q1FY22, the company reported higher revenues, but the increase in the cost of sales and overall expenses completely negated the positive impact of higher sales, resulting in the weaker profitability ratios when compared to the industry media, which is represented below.

Source: Refinitiv, Analysis by Kalkine Group

• Sequentially increasing cash conversion cycle: The company is inefficient in converting the inventory into cash, and in Q1FY22 the group is taking 55.6 days to convert its inventory into cash, which is higher than the 16.2 days reported in Q4FY21. This is a serious concern for the company as the increasing number of days is slowing down the cash rotation.

Valuation Methodology (Illustrative): EV/ Sales based

Analysis by Kalkine Group

Stock Recommendation:

The company reported an increased cost of sales to USD 1,453.07 million during Q1FY22 as compared to USD 872.90 million in the pcp, and the operating expenses rose to USD 1,550.84 million in the reported period (Q1FY22) vs USD 994.28 million in the pcp. The increased expenses widened the net loss to USD 0.731 million in Q1FY22 as compared to the net loss of USD 0.347 million in Q1FY21. The cash flows from operating activities also declined to USD 0.015 million against the cash flows from operating activities of USD 0.39 million in Q1FY21, which is a key negative.  On the valuation front, the stock is measured on the EV/ Sales based relative valuation multiple and we have considered Nexters Inc., and Playstudios Inc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock of KIDZ at the last closing price of CAD 0.41 on June 7, 2022.

One-Year Technical Price Chart (as of June 7, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV

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