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small-cap

Should You Exit This Small-Cap Software Stock - DSP

Feb 18, 2022 | Team Kalkine
Should You Exit This Small-Cap Software Stock - DSP

Viant Technology Inc.

Viant Technology Inc. (NASDAQ: DSP) is a people-based advertising software company that enables marketers and agencies to plan, acquire, and measure their advertising efforts across most channels. It provides, Adelphic, a self-service demand-side platform (DSP) that allows marketers and their ad agencies to plan, buy, and measure advertising across several channels. DSP charges platform fees to its customers, which is either a percentage of spend or a set monthly subscription fee and payments for extra features like data and advanced reporting.

Why Should Investors Exit?

  • Significant Decline in Profitability: DSP reported net loss of USD 2.54 million in Q3FY21 vs. net profit of USD 7.48 million in Q3FY20.
  • Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 0.31x as of September 30, 2021, compared to the industry norm of 0.16x.
  • Weak Margin Profile: In Q3FY21, DSP’s reported gross margin was 43.0% vs. the industry median of 77.1% and reported EBITDA margin of -17.4% in the period under consideration which was lower than the 25.5% reported in the same period of the corresponding previous financial year.
  • Customer Concentration Risk: DSP's top two customers contributed 13.3% and 13.2% of total revenue in FY20, respectively. As a result, the loss of any of these key customers could harm its financial performance.
  • Technology Risk: DSP's servers' power, internet access, and technological security are entrusted to third-party data center hosting providers (such as Google Cloud Platform and Amazon Web Services). As a result, any interruption in service or damage to the facility could jeopardize the company's operations.
  • Technical weakness: At the last closing, DSP shares traded well below its crucial long-term support level of 200-day SMA and also below its crucial short-term support level of 50-day SMA, implies a long-term bearish trend in the stock. Also, the leading momentum indicator, 14-day RSI hovering in a neutral zone with bearish bias.

Valuation Methodology: Price/Sales Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

DSP's share price has declined 63.41% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 6.10 to USD 66.45. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 6.99.

Considering the company's declining profitability, weak margin profile, balance sheet risks, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 7.90, down 3.42% as of February 18, 2022, at 12:37 PM ET.

             

Three-Year Technical Price Chart (as of February 18, 2022, at 12:37 PM ET). Analysis by Kalkine Group

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

* All forecasted figures and industry information have been taken from REFINITIV.