IZEA Worldwide (NASDAQ:IZEA), an advertising company that connects influencers and bloggers with brand name companies, is experiencing a boom in gross billings. As a result, IZEA stock has taken off – up more than 400% in the past 30 days alone and is still rising.
On Dec. 15, IZEA stock was at 94 cents per share. By Friday, Jan. 22, the stock had spiked to $4.71, a gain of 401% in a little over a month. In fact, over the past year, IZEA stock has skyrocketed more than 1424%.
So something big is going on.
Expectations of Forthcoming Profits
The spate of good news in their bookings leads to a huge new expectation. There is now a very good chance IZEA can get profitable this year, at least on an adjusted EBITDA basis (earnings before interest, depreciation, and amortization).
The company said on Jan. 12 that it had won a “7 figure contract from a Fortune 100 retailer.” This is a repeat customer that is expanding its gross billing spend with IZEA.
In addition, this is on top of two new Fortune 10 company contracts the week before. Moreover, on Jan. 5 IZEA reported that these two new contracts were expanding their existing influencer campaigns with IZEA. They were obviously pleased with the company and were willing to spend more money.
But that is not all. Apparently, these two contracts were so large that their combined value already exceeds 50% of the total of last year’s January billings.
These wins came upon the surge of managed services bookings that IZEA saw in the fourth quarter of 2020. Managed services bookings increased 48% in Q4 of 2020 compared to Q4 2019.
This leads me to believe that the company could easily reach more than $42 million in gross billings this year. Based on my calculations, IZEA tends to pay about 26% to 27% to its third-party influencers. That implies that its net revenue could be 73% of $42 million, or $31 million.
Keep in mind that the company has yet to be profitable. In fact, its peak revenue was in 2017 when it generated $24.4 million but still lost $5.47 million. In 2019 IZEA produced $18.96 million in revenue, down from $20 million the year before. But it still lost $7.3 million in 2019, up from $5.3 million in 2018.
What IZEA Stock Is Worth
So the chance of making a profit this year (2021) is definitely a good change of pace. In fact, according to Seeking Alpha, analysts are only expecting revenue of $23 million this year. However, I don’t think these forecasts have been updated with the latest surprise revenue news from the company.
Even though my revenue forecast of $31 million is higher than the average, I believe that analysts will catch up to my figure. More importantly, this revenue target leaves plenty of room for the company to begin to get profitable.
IZEA should be able to make at least a 10% margin on $31 million, or $3 million. That works out to about 6.4 cents per share based on 48.5 million shares outstanding.
Therefore, at $4.71 per share, as of Jan. 22, IZEA stock has a market value of $228 million. This is 76 times the forecast $3 million in profits this year. But it is also just $7.35 times revenue. If the company can build on its profitability in the coming years, the price-to-earnings ratio may not seem as high as now.
With a 25% growth in profits in the following next three years, profits will almost double to about $6 million. That lowers the P/E ratio to just 38 times.
To be honest, though, this is a fairly rich valuation for a company that still has a history of producing losses. It’s one thing for IZEA stock to move up based on all this good gross billings news. But it’s another thing for forecast profits, even with optimistic assumptions.
For all intents and purposes, this means that IZEA stock is likely fully valued at this point.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
