Bidstack’s share price no longer comes close to representing the fundamentals. But investors will need patience.
I last covered Bidstack (LON: BIDS) in mid-December 2022, hailing the video game advertising company as ‘one of the best undervalued tech stock opportunities to consider in 2023.’
As neither a mining company nor a biotech, BIDS is one of only a handful of companies outside of my wheelhouse (others include HARL and ONDO) where I felt positive enough to give it my vote of confidence. Of course, despite my enthusiasm for the FTSE AIM share, this was not and is not financial advice.
At the time, BIDS shares were changing hands for 3.18p, and now they’re trading for 1.87p. That’s roughly £17 million lopped off the market cap. Ouch.
Annoyingly, much of the fall can be attributed to the resignation of long-time MD Francesco Petruzzelli very shortly after my article, who is now working only in a strategic adviser capacity.
CEO James Draper noted that ‘Francesco and I have been on this journey for many years, building Bidstack initially from a concept that turned into one of the first Digital Out of Home (DOOH) programmatic platforms, to our pivot in 2017 when the Company began the rebirth of in-game advertising. Where the Company sits today is testament to some truly world class individual contributions of his.’
This was a huge blow to the company — but the despite the share price movement, the fundamentals have not changed.
And positively, BIDS appointed new CFO Thomas Bullen in mid-February. Bullen was previously CFO at AdColony, helping lead it to a successful $400 million exit to Digital Turbine in 2021. This follows Jude O’Connor and Camila Franklin who joined as CRO and COO respectively in September 2022, both also AdColony veterans.
These people have done it once before. They can do it again.
Azerion dispute
The biggest problem dragging down BIDS’ share price is the long-running dispute with Azerion. Most recently, Azerion has argued that ‘the Court of Amsterdam ruled broadly in Azerion’s favour during a preliminary hearing,’ a claim BIDS characterises as ‘substantially misleading.’
After the preliminary hearing brought by Azerion to try to lift a freezing order over its bank accounts granted to BIDS by the Dutch courts, the court held that BIDS had claims for a net €1.6 million relating to invoices issued to Azerion to the end of October 2022.
The freezing order has only been lifted because Azerion provided equivalent security through a bank guarantee to BIDS, not because the amount has been successfully contested. The court also refused to prohibit BIDS from making further applications for additional freezing orders for additional claims — but BIDS would have to provide countersecurity to cover any costs.
Indeed, all costs are currently being borne by each side. A full hearing will be conducted in Amsterdam in ‘late Q3 2023.’
The original deal, struck in December 2021 and expected to last for two years, was described as a ‘landmark commercial partnership,’ with Azerion getting exclusive access to BIDS tech and being its sole external reseller for this time. Azerion has 1,000 employees and a global footprint, boasting 500 million unique MAUs playing on 20,000 game titles. Losing this partnership, bitterly, is not good regardless of the legal settlement.
If I had access to the full legal contract, I could determine which company is at fault — while BIDS is alleging wrongful termination, the issues started when it felt that Azerion was withholding payments due under the contract.
Without the details, no investor on either side actually knows.
Financial situation
In recently released unaudited FY22 figures, BIDS saw revenue rise by 103% to £5.3 million, gross margin almost double to 70% compared to FY21, and its cash balance as at the end of last year increased by 21% to £8.7 million.
On top of this, BIDS is ‘owed’ an additional £4 million from Azerion, which would yield £9.3 million gross billings. However, because the amount is in dispute, the revenue will likely be reported as £5.3 million, and margins will be lower too.
It’s worth noting that the Azerion dispute isn’t just about this much-needed extra cash. It’s also about restoring Bidstack’s good name — the reality is that many would-be partners either can’t or don’t want to do business with a company whose relationship with its sole external reseller broke down, without knowing who was at fault.
The judgement is unlikely to be in black-and-white, as these things rarely are given that both parties are refusing to settle. It suggests that both have a reasonable claim, but it’s also worth noting that Azerion may feel it can simply ‘outmuscle’ the junior partner.
Operational changes
Positive momentum continues unabated, as the company had already booked £1.2 million of revenue in Q1 2023. Recent developments include:
- £10.5 million of placing proceeds, including a 13.5% stake taken in BIDS by cybersecurity market leader Irdeto
- growth from 58 to >250 titles, including two more AAA titles and a multi-year renewal with Sports Interactive’s Football Manager
- onboarding of multiple new resellers including MMP Worldwide
- new partnership with Unity as a Unity Verified Solution recommended monetisation solution for game developers across all platforms
- two-year exclusive in-game advertising agreement in Ubisoft’s successful mobile franchise Hungry Shark Evolution
- signed enterprise customers with Status PRO’s NFL PRO ERA 23, the first ever licensed NFL virtual reality game
- Internet Advertising Bureau (IAB) has finally recognised standards for in-game advertising
- early success with licensees including Adways and SimWin Sports
Where next for Bidstack?
Bidstack remains confident in its ‘ability to operate independently of the Azerion relationship over time…FY23 revenue to increase more than previously expected, for the Group’s revenue to be significantly greater than FY22 and materially weighted to the second half of the year.’ Further, Draper is still targeting ‘a $100 million revenue opportunity over the next three to five years.’
Given the hire of multiple AdColony team members and its US growth strategy, the company had already seen Q1 ‘multiples of our previous best revenues for this period’ by mid-February. The CEO notes that BIDS is now ‘working with a number of the world’s biggest game studios, with exponentially growing campaign sizes.’
In a recent interview, Draper warned founders to avoid unrealistic early revenue expectations — though really this he was addressing Bidstack investors. The coded message is this: the opportunity is good, the revenue will come in over the next three to five years, and the growth story is just getting started.
Now he just needs to settle or win the Azerion dispute and convert the good news into positive share price action. Ideally, the two could negotiate a new working partnership though at this stage it’s very unlikely.
But Bidstack remains a unique opportunity for growth investors. There’s nothing quite like it.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
