New AdLogic Platform Will Deliver High-Performance Campaigns More Cost-Effectively

Key Takeaways

• The AdLogic platform and strategic sports projects are expected to boost revenue, earnings, and cash flow due to efficient targeting and new revenue streams.
  
• Resolving liabilities and pursuing SOC 2 certification may strengthen financial flexibility and credibility, enhancing competitiveness and investor confidence.
  
• Revenue and cash flow concerns, high debt, and project timing issues potentially threaten Creative Realities' financial stability and growth projections amid market dependencies.

Catalysts

Provides digital marketing technology and solutions in the United States and internationally.

• The introduction of the AdLogic CPM+ platform is anticipated to drive revenue growth by enabling customers to execute high-performing targeted campaigns at reduced costs, potentially increasing advertising revenue.
  
• With an expected acceleration in topline growth in the second half, driven by economies of scale and higher margins due to increased demand and the AdLogic platform, the company foresees improved earnings and cash flow.
  
• The completion of the NHL arena deployment and ongoing sports and entertainment projects, including awarded MLB projects, suggest future revenue streams, supporting overall revenue growth.
  
• Resolution of the contingent liability with Reflect Systems should enhance the company's financial flexibility and potentially improve investor confidence, supporting a stronger balance sheet and improved net margins.
  
• The company’s dedication to achieving SOC 2 Type II certification could enhance operational credibility, making it more competitive for enterprise-level contracts, thus driving future revenue growth.

Creative Realities Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Creative Realities's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.9% today to 2.7% in 3 years time.
• Analysts expect earnings to reach $2.0 million (and earnings per share of $0.18) by about May 2028, up from $-3.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.7x on those 2028 earnings, up from -5.6x today. This future PE is greater than the current PE for the US Media industry at 16.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Creative Realities Future Earnings Per Share Growth

Risks

• The decline in fourth-quarter revenue from $14.5 million the previous year to $11 million suggests potential issues with demand or execution, impacting future revenue stability.
  
• The company experienced a significant cash reduction, with cash on hand decreasing from $2.9 million to approximately $1 million, which could strain liquidity and affect net margins.
  
• CRI's gross and net debt levels are substantial, with a slight increase due to seasonal working capital requirements and SaaS billing timing, posing a risk to net earnings as interest expenses rise.
  
• Ongoing projects face deployment timing challenges, with larger retail media network opportunities taking time to close and ROI on CapEx-heavy projects taking up to two years, potentially impacting predictable revenue and margin growth.
  
• The 90-day pause on BCTV installations due to external funding discussions suggests dependency on client financial health for project continuity, which could impact revenue projections.

Valuation

• The analysts have a consensus price target of $6.625 for Creative Realities based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $4.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $73.3 million, earnings will come to $2.0 million, and it would be trading on a PE ratio of 41.7x, assuming you use a discount rate of 7.4%.
• Given the current share price of $1.87, the analyst price target of $6.62 is 71.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.