the pain for W.M. technology (NASDAQ:MAPS) got even worse after the results of the second quarter of 2022 in August. The market absolutely hates the cannabis space and pretty much any SPAC deal that provides a one-two punch for the owner of Weedmaps. my investment thesis remains bullish on stocks despite an ongoing period of weakness in the cannabis space.
For all the promise of a technology and consumer platform serving the growing US cannabis space, WM Tech. continues to struggle to meet somewhat aggressive financial targets. The sector has not grown at the expected rate with a difficult retail market due to high inflation. All the public multi-state operators (MSOs) have also not reported very impressive numbers during this period.
For the June quarter, WM Tech. reported strong growth in paying customers, but average monthly revenue per paying customer dropped sharply. The company continued to innovate and build the market, but the ad and delivery business struggled and customer liquidity in some cases reduced spend despite good returns on platform spend.
WM technology. it missed estimates by a wide margin with revenue hitting $58 million, $3 million short of guidance. Worse yet, the company drove 2H revenue down for the year.
The Weedmaps business was originally forecast to reach up to $70 million in quarterly sales by the end of 2022. Regardless, the biggest highlight of the quarterly results was the 10% sequential increase in paying customers to 5,537, while the company he had almost 500 clients. either removed from the platform or put on paid plans.
The company grew by paying customers 30% year over year in an environment where cannabis businesses weren’t exactly expanding. Very few states increased license holders during the last quarter, although states like New York have plans to start recreational cannabis with additional license holders.
The main problem was that customers were only spending $3,509 per month, down from $3,810 last year. As mentioned above, at least 500 clients were forced to downsize and submit payment plans.
In a very positive sign of the viability of customers using Weedmaps and WM Tech. software solutions, California customer spending grew 10% year over year, while the state’s cannabis license market fell 10% . The company can expand its market share, but WM Tech. needs a healthy cannabis retail market to meet growth targets.
The business has definitely struggled to meet financial goals since going public. WM technology. It relies much more heavily on cannabis end markets than was likely appreciated when the company went public through the SPAC deal.
With 145 million shares outstanding, WM Tech. only has a $300 million market cap here after the Biden push. Hardship or no hardship, the company is still on track to generate $219 million in annual revenue in this tough retail environment.
States from Illinois to New Mexico, from New Jersey to New York plan to issue thousands of licenses that will expand WM Tech’s market. The New Jersey and New York recreational cannabis markets alone are poised to drive cannabis sales in the US by up to $8 billion.
The company guided earnings down even though July sales grew at a medium pace. WM technology. reported last year’s third quarter sales of $50.9 million, so the guidance doesn’t exactly add up considering what would amount to a massive $7.4 million drop in sequential revenue to hit a flat figure in the third quarter of 2022.
The company forecasts a similar drop in ARPU from paying customers while possibly continuing to grow the customer base in a tough environment. Investors should be careful about extrapolating too much from the current environment.
The stock has fallen too far due to the difficult retail environment that is beyond their control. The combination of some illegal cannabis claims on the platform of an MJBiz article contributed to a massive drop in WM Tech. since mid-summer.
If WM Tech. makes the deal work, the shares will trade at a much higher multiple of sales. The company has growth opportunities in Canada, Europe, and Mexico and will ultimately participate in the growth of the US cannabis sector from current annual sales of $25 billion to more than $100 billion in the long run. term.
The company has a cash balance of $48 million and plans to achieve adjusted EBITDA earnings in the second half after cutting expenses and cutting the workforce by 10%. The business just isn’t priced for opportunity evidenced by the 64% gain on Oct. 6 after President Biden finally took action on marijuana reform.
The key takeaway from investors is that WM Tech. is not priced correctly for the opportunity that lies ahead in the cannabis sector. The action has already given back much of Biden’s pop. Investors should use any other weaknesses to load on Weedmaps owner below $2.