IZEA-Owned Hoozu Buys 26 Talent, Expands in APAC
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss Hoozu’s acquisition of 26 Talent, including the deal value prop, key deal terms, and parent co IZEA’s financial and stock performance.
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IZEA bought 26 Talent to expand in APAC.
Parent co IZEA’s 1Q financials explain the continued M&A dealmaking.
Let’s break it down…
👀SELLER: 26 Talent
- AUS-based Influencer mgmt company
- Services: talent rep and brand marketing
- 53 talent clients, mostly women (per website)
- Focus on Instagram, TikTok, podcasting, and YouTube
- Founded 2019 by Mikhailla Fitzgerald
- 6 total team members (per website)
💰BUYER: Hoozu
- AUS-based influencer mktg agency in APAC
- Has talent mgmt division for AUS creators (Huume)
- Founded 2015 by Nathan Ruff and “footballer” Lote Tuqiri
- Parent co is IZEA (acquired in 2023)
- < 15 team members (per LinkedIn)
- Acquired Remarkables Group in 2021, made founder Natalie Giddings CEO
- Profitable for past 2 yrs as of 2023
💵PARENT CO OF BUYER: IZEA
- Provides influencer mktg tech, data, and services
- Public on NASDAQ
- Founded 2006 by Ted Murphy
- Has done influencer programs for half of Fortune 50
- 1M users on influencer mktg platforms
- 150 team members in 13 countries
- Clients incl retail, DTC, restaurants, SAAS, entertainment, travel
- Bought Zuberance and Hoozu in Dec 2023
🧐IZEA FINANCIALS
Stock performance as of 7.18 at 940am ET…
- $2.49 share price
- Mkt cap of $40.7M
- Up 23% YTD
- Down 8% YoY
A July 8 announcement from CEO…
- $10.3M of 2Q Managed Services contract bookings (40% up YoY)
- 90% driven by organic growth, 10% via M&A
- $13.6M for 1H 2024, up 46% YoY
- Expects 2H 2024 performance to be strong based on bookings + pipeline
- Managed Services is primary revenue driver
- Also seeing growth in SAAS via FormAI product
1Q 2024 YoY results per SEC filings…
- Total revenue decreased 20.4% to $7M
- Managed Service revenue decreased 21.2% to $6.7M
- SAAS revenue grew 3.7% to $256k
- Adj. EBITDA was negative at $2.8M, worsening from $2.2M
- $39M in cash
- $500k in LT liabilities
🤝DEAL DETAILS
- No deal terms disclosed
- My guess is: upfront payment + earnout + good comp plan
- NOTE: Seller also owns Twenty6 Marketing, an IM agency for brands. I assume that’s also part of deal
🤝DEAL VALUE PROP
- Increases Hoozu capabilities, footprint in APAC region
- Help Huume be go-to IM partner for brands in APAC
- Part of broader IZEA strategy to build portfolio of services and talent to cater to evolving brand / marketer needs
- Cater to APAC’s growing digital economy
📝APAC MARKET NOTES
- IM is $2.3B, 23% of global mkt
- Est 40% CAGR for 2024 to 2031
- Driven by large population and growing Internet penetration, social media usage
- Growing demand for localized content that resonates w/ regional audiences
🔎POST DEAL OPS
- 26 Talent will be folded into Huume, Hoozu’s talent rep biz
- Fitzgerald will newly lead Huume, and report to Hoozu CEO
🤔WHAT I FIND INTERESTING & DEAL INSIGHTS…
Here’s a quote from IZEA Chairman and CEO Ted Murphy from the July 8 press release:
“We are encouraged by the year-over-year growth in bookings and substantial increases in our pipeline, which have not yet been reflected in our stock price. IZEA’s Board of Directors and management team firmly believe that the market currently undervalues our core business, technology assets, and cash reserves. This share repurchase program grants us the flexibility to buy back stock over time, provided market conditions remain favorable.”
Let’s discuss the different components of this quote, as well as some general company and ad market context…
Based on a review of financial performance I detailed above, IZEA is facing challenges in growing revenue (1Q 2024 is down 20.4% YoY), but has a decent cash position of $39M (up from $35M when I last wrote about IZEA’s 2 acquisitions in Dec 2023).
That explains the continued M&A — if IZEA can buy revenue at a lower multiple than what it’s getting valued at in the public markets (which based on my analysis at bottom of this post, will have to be pretty low!), and has sufficient cash reserves for dealmaking and working capital cushion, then the M&A strategy can drive revenue growth and enterprise value via accretive dealmaking.
The challenging 1Q financial results also explain why in advance of Q2 SEC filings and a formal earnings announcement, the company issued the press release about growing bookings and pipeline (which are different than revenue). Perhaps yes, these are signals of better financial times ahead for 3Q and 4Q 2024, but my guess is that actual 2Q 2024 revenue figures will show continued decline.
Here’s some general context on the ad market based on our client convos → overall ad market performance signals a rebounding from depressed growth in 2023 vs 2022, but agencies still report challenges with marketers pushing back some spend till later in the year, and doing smaller overall campaigns. Further, there’s more competition for ad dollars from a very fragmented digital agency market. Though, as I continue to write about in this newsletter, that market is quickly consolidating, and marketer spend is increasingly going to the larger agencies that have a diverse set of digital service offerings in house (e.g. IM, paid media, branded content, affiliate, social account mgmt), and large sales teams for brand and marketer coverage.
Also of note, IZEA announced the launch of a $5M share repurchase program. IZEA wants to take advantage of what leadership perceives as the market’s undervaluation of the company. The CEO talks of public markets not valuing its tech, but I think that’s a hard claim to make when its SAAS products are driving under 4% of total revenue. Perhaps IZEA’s technology tools are a key component in servicing broader company revenue, and / or there’s a strong pipeline of new SAAS customer prospects.
But based on historical performance, investors will want to see clear and direct revenue and profit impact from SAAS, and the company just doesn’t have scale there yet. Based on YTD stock price performance (up 23%), investors might have *slightly* more optimism about the 2023 transformation of the company, continued M&A strategy, signals of Managed Services revenue growth based on bookings guidance, and a rebounding of the ad markets.
That being said, overall investor outlook for the company is low when you consider their valuation. If my simple math is right below, IZEA is barely getting a premium above its cash on hand.
IZEA Valuation Analysis
- $41M of mkt cap as of 7.18
- $39M C&CE as of 1Q 2024
- No LT Debt as of 1Q 2024
- $36M revenue for FY 2023
- ($5.5M) negative adj. EBITDA for FY 2023
- Implies Enterprise value of $2M (Mkt cap + debt – cash)
- Implies EV / 2023 revenue multiple of 0.06x ($2M / $36M
That’s not an optimistic view of the business and its growth prospects.
Further, some investors might include $17M of short term investments as part of cash, which would then imply a negative enterprise value of ($15M).
Like I said in Dec 2023, I’m rooting for IZEA to figure out a viable path forward. But they’re going to have to start showing meaningful revenue and profit growth to prove there’s a light at the end of the tunnel. Unclear how patient investors will be until they start demanding IZEA perhaps seek some M&A options itself.
My guess is that they get until 1Q 2025, and then the investor pressures could really start to mount.
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I’m the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.
DM me on LinkedIn or email me chris @ wearerockwater dot com
