- Data fusion at core of operations: The IDI leadership team has been involved for more than a decade in the pioneering use of data analytics. Data fusion provides means for combining identification and activity-based data points into more complete and meaningful information about individuals and consumer groups that can be very powerful for a variety of users from law enforcement, banking and insurance to consumer-based applications. Some data is highly proprietary and cannot be shared broadly, while other data is less restricted and/or involves user-generated data useful in consumer marketing and ad campaigns. Ultimately, the Holy Grail is customized Big Data and Analytics solutions that go beyond the scope of competitive applications to high ticket, very profitable jobs.
- Traditional applications at core IDI are currently small but offer a potentially fast growing and high margined business opportunity: The ability to leverage the cost of data needed to create this business opportunity presents the potential to create rapid revenue growth with accelerating margins that should generate the true growth story for this company in fairly short order.
- Fluent acquisition provided opportunity to apply data fusion capabilities to a new application in consumer products advertising, with meaningful current revenues but at more moderate potential for margin gains: Fluent secures much of its own data, so margin improvement trends are meaningful but slower.
- We are initiating coverage on IDI with an OUTPERFORM rating and a 2016- based price target of $7. Given IDI’s early stage of development but recognizing its significant potential, we incorporate a blend of valuation measures that utilizes Enterprise Value/Sales for now but moving to Enterprise Value/EBITDA as the business model matures over the next several years. Fluent provides the company with substance as management executes on its mission to create a new data analytics operation. While the company is currently generating negative metrics for EPS, EBITDA and Free Cash Flow, our projections have all of these metrics turning positive in 2018. We are using a 1.7x multiple on EV/Sales for 2016, and then edging higher on that measure as EV/EBITDA moves below 15x and becomes the primary multiple. Continuing profitability gains should drive that measure even lower. Our valuation metrics produce a sequence of price targets that improve from $7 for 2016 to $8 for 2017 and ramping higher thereafter.
More IDI analysis HERE.