Zoomd Technologies' Earnings Under the Microscope: Accrual Ratio and Cash Flow Concerns.

Zoomd Technologies reported healthy earnings, but there are other factors to be aware of. The company's accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to its earnings. Zoomd Technologies had free cash flow of $11m in the last year, which was a lot less than its statutory profit of $13.1m. The accrual ratio was much better last year, so this year's poor reading might simply be a case of a short-term mismatch between profit and FCF. Shareholders should look for improved cash flow relative to profit in the current year.

Zoomd Technologies (TSXV: ZOMD / OTCPK: ZMDTF), a Canadian micro-cap company specializing in digital advertising solutions, reported strong earnings in its latest quarter. However, the company's cash flow metrics have raised concerns among investors. The company's accrual ratio for the last twelve months indicates that cash conversion is less than ideal, which is a negative when it comes to its earnings. Zoomd Technologies reported free cash flow of $11 million in the last year, significantly lower than its statutory profit of $13.1 million. While the accrual ratio was better last year, the current year's poor reading might be a short-term mismatch between profit and free cash flow. Shareholders should look for improved cash flow relative to profit in the current year.

Zoomd Technologies operates in the marketing sector, helping brands scale their digital advertising beyond Google and Meta on a unified and centralized platform. After a challenging 2023 due to its exposure to cryptocurrency clients, the company has re-emerged with a more diversified customer base, posting triple-digit revenue growth and solid profitability over the last five quarters [1].

The company's solutions cover the entire digital advertising ecosystem, adapting to different environments and advertiser needs. Zoomd Technologies offers a DSP (Demand Side Platform) that connects to more than 30 exchanges, and its Skipper Networks solution allows leveraging large-scale ad networks and integrates with hundreds of publishers and device manufacturers. The company also offers its own solution Albert for managing social media and search engine campaigns and could help with creator-based video production with creators and influencers, focusing on user acquisition. In 2021, it acquired Performance Revenues, a company focused on influencer marketing [1].

Despite the challenges in 2023, Zoomd Technologies' sales have recovered and are close to pre-2023 levels, despite a very different customer base and low crypto exposure. The company's EBITDA margin was 28% and the net margin 26% during Q1 2025, accumulating five quarters of both operating and net profitability. Free cash flow looks even better since the conversion of net income to cash from operations was 85% in the last twelve months and the necessary maintenance capex is minimal [1].

Zoomd Technologies is on track to reach sales of $70-75 million during FY2025 if we annualize the results from the most recent quarter. If we estimate that it maintains an average annual growth of 20% in the future and net margins remain around 20% without share dilution, the company could earn just over $25 million in net income within five years (FY2029) [1].

While Zoomd Technologies' recent performance is impressive, it is not without risks. Approximately 85% of Zoomd's revenue comes from its top five clients, with one client accounting for 40% of sales. There is a risk that the loss of even one of these clients could significantly impact its revenue. Additionally, the company faces intense competition from ad tech giants like The Trade Desk (TTD), AppLovin (APP), and Google/Meta themselves. If these companies begin to target Zoomd's core customer base more aggressively, they could put pressure on pricing and customer retention [1].

In conclusion, while Zoomd Technologies reported healthy earnings, its cash flow metrics have raised concerns among investors. Shareholders should look for improved cash flow relative to profit in the current year. Despite these concerns, the company's strong performance and growth prospects make it an attractive long-term investment, but it is essential to monitor the risks associated with customer concentration and competition.

References:
[1] https://seekingalpha.com/article/4790422-zoomd-1900-percent-return-last-year-but-still-more-to-go