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. 

Investment Highlights 

• Robust growth in revenue: In Q2 2021, the company's total revenue, excluding platform fees and withholding taxes, climbed by 196% to USD 2.17 million, compared to USD 0.73 million in the previous equivalent quarter. Revenue also increased by 40% sequentially, which is a significant positive. This increase was mostly due to a high demand for contextual advertising, which was fueled by the adoption of stringent laws throughout the world.
• Increasing pace of growth: The Company's extraordinary growth may be attributed to the broader digital economy's powerful market and consumer dynamics, as well as its specialty of private, safe, and targeted advertising. One of the primary forces driving development is the rising dominance of mobile usage and mobile entertainment among all age groups.
• Increase in cash from operations: For the first six months the company’s cash provided by operations increased to USD 313,830, compared to USD 144,085 in the same period in the prior year.
• Ventured in China: As AdTech markets continue to develop globally, thus the previously untouched regions are available for 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 would be able to extend its global capacity to advertise and offer secure media as a result of these agreements.
  

Financial overview of Q2 2021 (Expressed in USD)

Source: Company

• In Q2 2021, the company reported higher revenue, which increased 196% to USD 2.17 million, against USD 0.73 million in the previous corresponding period. The company witnessed a healthy performance from Ad tech advertising, partially offset by content revenue.
• On the back of higher revenue, the group posted an increased gross profit of USD 1.0 million, against USD 0.32 million in pcp.
• Higher G&A expenses, selling and marketing expenses, and salaries along with stock awareness expenses the pushed the total operating expenses to USD 1.6 million in Q2 2021 V/s USD 0.69 million in pcp.
• The company reported a net loss of USD 0.54 million in Q2 2021, compared to a loss of USD 0.36 million in pcp, partially offset by gain on derivative liability.

Risks associated with investment

The company operates worldwide, which generates a risk that the exchange rate fluctuations may adversely impact cash flows. Continued reduction in OEM sales of Kid’s tablets could also weigh on the group’s content segment revenue. The business model is also exposed to regulatory risk such as licenses. 

Stock recommendation

The company's total revenue increased by 196% and 40% in Q2 2021, respectively, when compared to the second quarter of fiscal 2020 and the first quarter of fiscal 2021, owing to the strong demand for contextual advertising generated by the introduction of strict regulations around the world. The company has expanded its footprint in the lucrative Chinese market by partnering with two popular mediation platforms in China, TopOn and TradPlus. Through these partnerships, we believe the company would be able to expand its worldwide ability to market and provide secure media. On the valuation perspective, the stock is trading at a forward EV/sales ratio of 3.64x, compared to a 6.7x industry average. Hence, based on the aforementioned reasoning, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 0.65 on October 05, 2021, with lower double digit (in % terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on October 05, 2021) Source: REFINITIV, Analysis by Kalkine Group

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

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