2023-05-01 17:48:37 ET
Summary
- WM Technology is a leading ancillary cannabis business.
- The stock, down more than 28% in 2023, seems to be too cheap.
- I like the stock, and it's nearly 9% of my cannabis model portfolio.
WM Technology ( MAPS ) is down 28.3% so far in 2023, and it has dropped 90.7% over the past year. I have discussed previously that I think it can rally substantially , so this lower price makes it even more attractive to investors.
MAPS runs two businesses, its well-known B2C company, Weedmaps, and a B2B business as well. You can learn more about the company in their investor presentation , which suggests that the B2B business represented about 24% of 2022 revenue and grew a bit faster than the overall business during the year.
In this piece, I discuss the company's past year, the outlook, the chart and the valuation.
2022
2022 was a very challenging year for the company and the industry. MAPS is currently run by the Executive Chairman on an interim basis. The former CEO departed in early November. The interim CEO, Doug Francis, is a co-founder of the company and can lead the company indefinitely, but I am hoping that the company can attract a new CEO that will appeal to investors as a good selection.
During the year, revenue grew 11.6% to $215.1 million, which was a lot lower than had been expected. The number of average monthly paying clients expanded 26% to 5457, but the average monthly revenue per paying client fell 11% to $3291, reflecting industry challenges and the high concentration to California.
Worse for the stock than the slower-than-expected growth in revenue was the erosion in profitability. Adjusted EBITDA fell from $31.7 million to -$9.6 million. The company reported EPS of -$1.36. In 2021, MAPS generated $30.2 million from its operations, but it consumed $11.6 million in 2022.
Outlook
MAPS reports its Q1 on May 9th. For 2022, analysts project that the company will see revenue dip 7% to $200 million. Adjusted EBITDA is expected to reach $18 million.
In 2024, sales are expected to pick up 7% to $214 million. Adjusted EBITDA is forecast to gain 29% to $24 million.
The Chart
MAPS has been pounded by investors. The stock was originally a SPAC that went public at $10. In November of 2021, it gapped down after the Q3 earnings report.
Over the past year, it has dropped substantially:
Charles Schwab StreetSmart edge
The stock recently posted an all-time low, but it rebounded a bit. Still, it is down 28.2% in 2023. I believe that $0.65 could provide support, and the first resistance that I see is at $0.85, which would still be down year-to-date. There are two open gaps above related to the Q3 and the Q2 earnings reports from last year. I believe that the first gap will be filled this year, more than doubling the price. My target for the stock is a little below the second gap, but it could achieve that as well.
Valuation
It's difficult to address the "right" level of valuation on this company, as revenue has been declining, and the EPS is negative and projected to remain negative for a while. I get the current enterprise value, using $28.6 million of cash at year-end, to be $135.4 million. Compared to the projected adjusted EBITDA for 2023, this works out to be a very low 7.5X. It's even lower for 2024, at just 5.6X. I think these are very low valuations for a company that is 100% focused on cannabis operators. The enterprise value to projected 2023 revenue is just 0.7X.
My year-end target is based on achieving 30X adjusted EBITDA projected for 2024, which has been stable recently. This works out to $3.26 assuming $20 million in cash to adjust the enterprise value. This would be more than quadruple the current price and works out to 3.4X projected revenue. Even if it were to get to just 2X projected revenue, the stock would trade much higher than its current level.
Conclusion
MAPS is a good company in my view, but it has been a horrible stock in a poorly trading sector. I believe there are technical reasons it could rally, and my target is much higher than the current price.
For further details see:
Put WM Technology On Your Cannabis Investing Map