One of my favorite small-cap growth stocks which I’ve been bullish on ever since it was a penny stock trading below $1, influencer marketing company IZEA Worldwide (NASDAQ:IZEA), reported disappointing first quarter numbers last night, and IZEA stock is paying the price today, dropping more than 20%.

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Admittedly, IZEA’s earnings report wasn’t great. The SaaS business is not ramping like bulls hoped it would. There are some odd discrepancies between bookings growth and revenue growth. And current shareholders are going to be diluted by a new $100 million shelf offering to be completed over the next three years.

None of that is great news.

But the big-picture fundamentals of IZEA turning into a technology titan of the multi-billion-dollar influencer marketing industry remain in-tact, and therefore, this big drop in IZEA stock is an opportunity for long-term investors.

I continue to believe shares have a pathway toward $14 over the next few years as the business scales. So, if time is on your side, it may be a good idea to buy IZEA stock.

Read on for my detailed take on IZEA stock (and subscribe to my free e-letter for daily insights on other emerging names!)

IZEA Stock: Why The Big Drop?

IZEA stock is plunging right now for four big reasons.

First, the company missed on earnings and revenues. In this environment, growth stocks are being punished even after they smash revenue and earnings estimates. So, a double-miss from IZEA is not good at all.

Second, the SaaS business is progressing at a snail’s pace. One of the big elements of the IZEA bull thesis was the ramp of its new influencer marketplace, Shake. But while management said that Shake revenues did grow sequentially in Q1, those revenues remain almost inconsequentially small, and the broader SaaS business continues to decline. Not great news, because the SaaS business represents the scalable future of IZEA.

Third, revenue growth is lagging. Bookings growth was 47% in Q4, 128% in Q1, and will run north of 100% again in Q2. Yet, against the backdrop of that triple-digit bookings growth, revenues rose just 13% in Q1. Management is chalking this up to the fact that bookings are realized over a three to nine month period, and therefore, revenue growth lags bookings growth. Still, the three-year-guide is for >30% annualized revenue growth, which while an “at least” number, still seems pretty low for a company doing triple-digit bookings growth.

Fourth, shareholders are going to get diluted. Management is rightly focused on growing as quickly as they can over the next few years to capitalize on the enormous opportunity in front of the company. Big growth requires big funds, and so, IZEA filed for a $100 million shelf offering which could potentially lead to the issuance of ~40 million new shares. The current share count is about 60 million, so there is the risk of the share count almost doubling over the next three years.

In sum, these four major issues are weighing on IZEA stock in a very big way.

This Is an Opportunity

We think investors need to see the forest through the trees here, and once they do, they’ll realize that the drop in IZEA stock is an opportunity.

The SaaS business is taking longer than expected to rebuild. But management is doing everything right today — from hiring more engineers to expanding its sales team to launching platform updates to marketing Shake — to accelerate growth in this business. Plus, the company is sitting on $65 million in cash on the balance sheet to throw at ramping the SaaS business. With time, we fully expect IZEA’s suite of software offerings to improve, gain traction, and grow rather quickly.

Meanwhile, our historical analysis does show that bookings growth is a leading indicator of revenue growth. Bookings just started to really pick-up steam in the last three months of 2020, and didn’t accelerate to triple-digit growth until Q1. As such, Q1 revenue growth rates shouldn’t be that big. The big growth rates will materialize in Q2, Q3, and Q4.

And, yes, management didn’t want to budge on its 3-year, 30% revenue growth per year guide. But this is an under-promise, over-deliver situation. Management made it very clear on the call that they established those targets at the end of last year, when bookings were rising by less than 50%. But five months later, bookings have been steadily rising at a 100% pace. It seems pretty clear that revenue growth this year will be well in excess of 30%, and that if current business momentum persists, it will far surpass 30% in 2022 and 2023, too.

Given this, we actually think management will crush its three-year revenue guide, and grow revenues by around 50% per year into 2023.

All in all, we think the headwinds knocking down IZEA stock are short-term and narrow. The tailwinds, meanwhile, are enduring and pervasive. That’s a great “buy the dip” combination.

Pathway to $14

Our modeling suggests IZEA stock has a pathway to $14 over the next few years.

This price target assumes that influencer marketing continues to grow as a percent of marketing budgets, with the majority of growth driven by micro-influencers, or smaller influencers with less reach but more impact. It also assumes that IZEA’s Managed Services business continues to grow at a very healthy pace, and that Shake and IZEAx start to gain significant traction and turn into meaningfully large revenue drivers. Plus, it assumes stable gross margins and positive operating leverage through economies of scale.

Those are admittedly aggressive assumptions. But not unreasonable, given the powerful tailwinds underlying the shift toward influencer marketing and IZEA’s robust business momentum today.

As such, we think it’s time to buy the dip in IZEA stock.

Bottom Line on IZEA Stock