Technology stock

WM Technology Stock: Back on track (NASDAQ:MAPS)

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While many SPACs have fallen short of their financial targets, the market continues to overlook companies with high growth potential such as WM technology (NASDAQ: MAPS). The technology provider and the cannabis market have not has always met its financial goals, but the owner of Weedmaps continues to grow at a rate of 30%. My investment thesis remains bullish on stocks trading near the lows below $6.

Solid company

WM Tech. went through a few tough times where unlicensed customers were cut off from the platform in the US and Canada. The end result was a vision that the company was struggling, but the reality is that the company had a strong business and the Q1’22 results highlight this situation.

The company reported revenue of $57.5 million, beating consensus estimates of $2.3 million. WM Tech. is back to generating nearly 40% sales growth with a forecast of around 30% growth in the future. These growth rates are not the type usually associated with 52-week lows for a stock.

WM Tech. still presents the kind of growth opportunity that initially pushed the stock above $20. The company has a leading cannabis market with technology drivers producing gross margins of 93%.

The user base jumped 52% to 16.4 million MAUs. The commerce platform continues to grow to levels that make adding new paying customers almost automatic.

The company is driving both paying customer growth and average revenue per paying customer. For Q1’22, monthly revenue per customer increased 9% to $3,810, while customer count increased 28% to 5,026.

Paying Customer Slide

Source: WM Tech. Presentation Q1’22

WM Tech. actually ended the quarter with 5,141 paying customers and monthly revenue for the paying customer of $4,052. Monthly revenue ended the quarter 6.4% above the Q1 2022 average, putting the numbers easily at the top of the forecast at $63.0 million. The company started the second quarter of 2022 at a monthly pace of $62.5 million.

The U.S. cannabis market isn’t even fully open yet, with most states still operating under limited licenses run by Multi-State Operators (MSOs), which aren’t the primary target of Weedmaps’ suite of solutions. . As new states approve recreational cannabis sales and existing states open retail licenses, WM Tech. is about to grow. For this reason, the company still derives the majority of its revenue from the California market.

The market opportunity is huge given that the alcohol market is 10 times larger than retail stores. WM Tech. produced 30% growth here with a lot of headwinds in the cannabis market. Ultimately, however, the market has 1,000% upside potential to match the retail licensing density of a similar product in alcohol.

Not yet profitable

The market just doesn’t like WM Tech. reverted to reporting EBITDA losses. Despite gross margins of 93% in the quarter, the stock market seems more concerned with short-term earnings than the long-term growth opportunity by leading the cannabis space in technology and commerce.

The Q2’22 revenue forecast of $61.5 million is roughly in line with analysts’ expectations. The key here is WM Tech. maintain growth rates above 30%, pushing 2022 sales to $260 million and 2023 sales above $350 million.

Chart
Data by YCharts

To achieve the 2022 goals, WM Tech. is expected to reach $75 million in revenue in the fourth quarter of 2022. The stock has 144 million shares outstanding for a market capitalization of approximately $750 million. The stock is trading at just 2x 2023 sales targets with a net cash balance of $56 million.

These “unprofitable” stocks are out of favor with the market, but investors should grab hold of WM Tech. at these valuations and so close to breaking even. The only real stocks to avoid are those that consume massive amounts of money and require large dilutive capital increases.

WM Tech. only burned $7 million of cash from operations in the quarter, mostly due to a similar jump in A/R balances. Some California market customers are struggling to pay bills and investors will want to watch any revenue impact going forward, although any customer cut off from the market would naturally result in orders being shifted to another customer.

Take away

The key takeaway from investors is that a leader in a technology-based market in a growing industry like cannabis doesn’t often trade at a 2x EV/S multiple. WM Tech. struggled out of the gate after the SPAC deal was struck, but the company is firing on all cylinders again.

Investors should take advantage of the stock’s current weakness to stock up on a market leader.