WM Technology: Analyst Lowers Price Target To $5.00 But Stays Overweight

WM Technology, Inc.MAPS reported its financial results on Monday for the third quarter that ended September 30, 2022, and a leadership transition to position the Company for its next phase of growth.

"Trends Getting Worse; CEO Departs, But We Stay OW on Franchise Strength," An Expert's Analysis Says

Cantor Fitzgerald’s Pablo Zuanic said, “We remain Overweight but lower our 12-month price target to $5 from $7 on reduced sales estimates and growth visibility.”

With 3Q sales fell 13% to $50.5Mn vs. guidance for flat to down mid-single digits (our last published estimate was $54Mn), and EBITDA worsened meaningfully to -$9.6Mn (19% of sales) vs. our -$1.9Mn estimate, according to Zuanic.

In addition, now, management is guiding for 4Q sales “to be down low teens YoY (or about -7% seq), which would imply 2H22 sales down 16% HoH vs. the August guidance of flat to down mid-single digits,” Pablo Zuanic added.

Recently, the company announced CEO Chris Beals will be stepping down and that a search for a new CEO has begun; in the interim, executive chair Doug Francis will take a more active role. Management confirmed that they are strategically searching for a new CEO with plans of hiring one in 2023, “We understand he will focus on improving profitability and refocusing the sales structure for greater and more profitable top-line impact,” the analyst said.

“We stay Overweight, opting to take a “glass half-full” view. In the very regulated cannabis industry,” Zuanic added. “We think the Weedmaps marketplace is a key tool for retailers to drive traffic in more mature and competitive markets, and the company is well-positioned to drive growth in the expanding markets of the east coast.” 

A growing array of SaaS offerings also should be a source of revenue growth beyond ad spend over time. 

Regarding 3Q22: Zuanic noted that sales of $50.5Mn (-1% YoY) were down 13% seq compared to 2Q22 sales of $58.3Mn. Based on Headset sales data and official state data where available, analysts estimate the overall industry in 3Q22 was down low-single digits seq, so in that sense -13% sales growth for MAPS is more pronounced.

Although revenue is not broken down by state, the company continues to be reliant on the “mature” markets where growth has been more negative. Also, despite top-line sales being slightly down, average monthly paying clients increased 1% (+39 accounts) sequentially to 5,576, this was offset by average monthly revenue per paying client decreasing 13% sequentially to $3,019 (compared to $3,509 in 2Q22).

“We note that featured and deal listings are less sticky, and more sensitive to the economic cycle,” he added.

“The difficult macro setup for MAPS paying clients has resulted in several accounts being unable to make their payments, in 3Q22 provision for doubtful accounts increased to $14.9Mn (up nearly $10Mn seq),” said Zuanic. “Profitability worsened too, partly on operating leverage. Adj EBITDA for the quarter was -$9.6Mn, (-19% of revenue), this compares with -$0.5Mn in the prior quarter.”

The company generated -$11.2Mn in FCF for the quarter and finished with $34.2Mn cash on its balance sheet.

Outlook: Although management did not provide guidance into 2023, based on the current business trends and conditions they lowered expectations for both revenue and adj EBITDA in 4Q22.

• Management is pointing to 2H22 sales being closer to the low end of the previously disclosed “mid-single digit” decline, which implies a YoY decline in the low double-digit area for 4Q22 revenue (currently we project $46.9M, -13% YoY).
• Management is guiding for 4Q22 adj EBITDA to be further impacted by provisions for doubtful accounts, which they anticipate will remain elevated based on the aging of their receivables, though significantly lower than in 3Q22.
• Prior to the call, the company announced a leadership transition, with CEO Chris Beals deciding to step down; he also decided to step down from the board of directors.

• Valuation and Price Target

“MAPS now trades at 1.8x CY23 EV/sales (1.7x on FactSet consensus) and 1.5x CY24, which represents a hefty discount to non-cannabis vertical SaaS vendors (6.2x 1yF), e-commerce enablement platforms (4.1x), and marketplace providers (4.2x),” according to the report. “Our current $369Mn EV estimate factors the 160mn share count, net cash of $34Mn, leases, and minority interest.”

“Given the drop in tech comps and the reduced visibility on MAPS growth (in our view), we now take 3x (vs. 4x before) on our 12-month estimates thru Nov 2024, which yields a November 2023 price target of US$5 (vs. $7 before on reduced estimates), Zuanic concluded.

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