- Today, we shine a spotlight on WM Technology, which is a small-cap technology concern and a back door play on the growth of the cannabis industry.
- The stock has fallen deep in Busted IPO territory since its debut but now trades at roughly two times forward sales and is seeing impressive revenue growth.
- An investment analysis follows in the paragraphs below.
"When you smoke the herb, it reveals you to yourself ." - Bob Marley
Today, we put WM Technology, Inc. ( MAPS ) in the spotlight for the first time. The company came public via a SPAC in 2021. Like almost every other small cap from that "vintage" debuting on the markets via this method, the shares are now deep in " Busted IPO" territory. With a much more reasonable valuation of two times forward sales and revenue growth of north of 30%, a deeper dive on this name seemed warranted.
The company recently became a member of the Russell 3000 and Russell 2000. An analysis follows below.
Company Overview:
WM Technology, Inc. is located just outside of Los Angeles. The company provides ecommerce and compliance software solutions to retailers and brands in cannabis market. WM Technology offers a subscription service that offers various services to clients such as ordering and analytics. The company also has a marketplace that allows cannabis users to search for and browse cannabis products from retailers and brands, and reserve products from local retailers. The stock trades just above three bucks a share and sports an approximate market capitalization of $525 million.
May Company Presentation
The company's primary business is via its Weedmaps app, which helps customers find dispensaries in their area, similar to Google ( GOOG , GOOGL ) but more specific. The clients can pay-per-click to appear as a featured listing, and WM Technology can also provide them with useful analytics and other capabilities.
The company recently created a new promotions hub that allows clients to create and manage all of their promotions, including online promo codes in-store deals and online deals from one place.
First Quarter Results:
May Company Presentation
On May 4th, the company posted first quarter numbers . WM Technology had a GAAP loss of 19 cents a share, 15 cents a share below the consensus. Revenues rose nearly 40% from the same period a year ago to nearly $57.5 million, which was slightly above expectations. Sequential sales growth continues to be in the high-single-digit level.
May Company Presentation
It is important to note that the company's net loss for the quarter included an $18.2 million change in the fair value of our warrant liability resulting from the change in our accounting following the SEC statement earlier last year on accounting for these types of warrants.
May Company Presentation
Operating expenses also increased substantially (78%) on a year-over-year basis during the quarter as the company made investments to increase capabilities, grow their design/engineering teams (the company had 150 new hires in the quarter), and to integrate the recent acquisition of Enlighten. This purchase gave WM Technology a subscription software offering that powers in-store digital menus and kiosks.
May Company Presentation
The company continues to see consistent growth in its client base, and its average revenue per customer has moved up slightly over the past several quarters (see graph above). Leadership provided the following guidance for the second quarter of this year.
May Company Presentation
Analyst Commentary & Balance Sheet:
Since early May, four analyst firms, including Piper Sandler and Stifel Nicolaus, have reissued Buy ratings on MAPS, albeit two of these had minor downward price target revisions. Price targets proffered ranged from $7.00 to $11.30 a share.
Approximately five percent of the outstanding shares in WM Technology are currently held short. Several insiders have been frequent and moderate sellers of the shares in recent months. Since early March, they have disposed of approximately $1.4 million worth of shares in aggregate. There has been no insider buying in these shares despite the steep sell-off in the stock over the past 18 months. The company had just over $55 million in cash and marketable securities on its balance sheet after posting a net loss of $31.2 million in the first quarter. It is important to note the company only burned through approximately $12 million worth of cash during the quarter.
May Company Presentation
Verdict:
The current analyst consensus has the company losing 20 cents a share in FY2022 as revenues rise more than 30% to $260 million. Next year, analysts have the company making just over 15 cents a share of profit as revenues rise to nearly $350 million. It should be noted there is a wide variance on earnings estimates (from a loss of 15 cents a share to a profit of 74 cents a share) and revenue ($316 million to $375 million) for FY2023.
I would like to see a bit better control on operating expenses, but it does appear that management is making strategic investments to grow the capabilities of its platform for its clients. Two times forward sales seem more than a reasonable valuation to take a small " watch item" position in MAPS, given the potential for profitability as early as FY2023.
"People in grass houses shouldn't get stoned ." - Brian Spellman
For further details see:
WM Technology: A Back-Door Weed Play