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SBIO: A Rising Ad-Tech Player in the Growing Streaming TV Market

What you need to know:
• Sabio is well positioned in the growing Connected TV (CTV) industry with 55M validated households. This provides a major tailwind, supporting its 38% revenue CAGR since 2020.
• SBIO completed a cost-cutting program in 2023, allowing EBITDA margins to bounce back to historical levels.
• Sabio has a blue-chip customer base with 90% of its revenue coming from re-occurring clients.
• Sabio trades at 5.4x/3.6x 2025E/2026E EBITDA, a discount to its peers.

Sabio Holdings Inc. (SBIO:TSXV, SABOF:OTC) is a Los Angeles-based ad-tech company specializing in helping top 100 global brands reach, engage, and validate streaming TV audiences in the highly fragmented media ecosystem. The Company is just now hitting its stride, with consistent revenue growth and EBITDA generation on the horizon. We are initiating coverage on Sabio Holdings with a BUY rating and a target price of C$0.90/share.

Investment Thesis Summary
Positioned in the Rapidly Growing Ad Supported Streaming Industry. Streaming TV ad spend in the U.S. is growing at a 15% CAGR as users shift from linear to streaming TV, providing a major tailwind for SBIO. Sabio has a data-rich household graph of 55M households which is based on mobile and CTV app data, providing it with propriety data segments and analytics, allowing its CTV/OTT revenue to grow at a 140% CAGR since 2020 while its total revenue has grown at a 38% CAGR.

Decreasing Reliance on Political Revenue. Historically, SBIO has been exposed to the booms and busts of political-related revenue. However, recently, the Company has decreased its exposure to the revenue source as it has successfully started to expand globally, continuing to post revenue growth after removing the effect of political revenue. In Q3/23, SBIO’s Connected TV/OTT segment still grew 28% YoY excluding political revenue.

Margins Bouncing Back. Sabio’s EBITDA margins were on a steady decline until this year, after it completed a cost-cutting program. EBITDA margins have now surpassed historical levels (8% expected in 2024 vs. 3% in 2022) and should be stable moving forward.

Blue-Chip Customer Base. Sabio is trusted by a customer base made up of Fortune 500 brand partners with 90% of its YTD revenue coming from re-occurring clients. Additionally, Sabio’s top 20 customers had a renewal rate of 90% and 70% of which are increasing their spend YoY.

Management & Ownership. Sabio is led by CEO & Co-Founder Aziz Rahimtoola, who brings over two decades of experience in the TV and digital advertising sectors at major firms. Mr. Rahimtoola owns 46% of the Company with the remaining management team and board owning 9%.

Discount to Peers. Sabio trades at 5.4x/3.6x 2025E/2026E EBITDA compared to its peer group average of 10.4x/8.8x. We attribute the discount to Sabio’s lower EBITDA margins and low float. However, we believe if Sabio can show consistent growth and profitability, the stock can re-rate to much higher levels.