Finally Dotd has done something with it’s massive cash pile. And ticked another “multibagger” attribute.
Dot Digital describe themselves as a leading SaaS provider of an all-in-one customer experience and data platform (CXDP) – or in plain english an all-in-one marketing platform for business.
The business displays many of the attributes of a multibagger, so is of particular interest to us here. DotD has been cash generative for a number of years, has “moat like” characteristics, specifically in the stickiness of its services driven by favourable client satisfaction ratings and high barriers in terms of switching costs.
Generates high margin, lots of repeat revenues and lots of free cash flow.
The business currently has a market cap of £224m, nicely within the “Multibagger Hotzone”
Share Price
The share price has gone sideways for the last 3 years trading in a range around 70p – 100p. This could be seen as somewhat unfair on a business that has grown revenues from £62.8m in 2022 to a forecast of £86.2m for the current year end 2025. Clearly “Mr Market” has overlooked the potential here, or been waiting for a catalyst to re-rate the shares.
One criticism of the business was what it would do with the cash. It seems we have an answer with today’s acquisition of “Social Snowball”, which could be the catalyst the market has been waiting for.
The initial purchase is $20m (approximately £14.8m), which is a premium valuation for a business that reported revenues of just over $3m in FY24, albeit growing rapidly to a run rate above $5m at acquisition. Dotdigital, however, highlights immediate earnings accretion, strong complementary capabilities, and expanded market opportunities as key justifications for the price paid.
The acquisition could well be a smart move. Social Snowball may have been too small to be of interest, and gone under the radar, of private equity. If Dotdigital can leverage Social Snowball’s integration with Shopify to tap into a rapidly expanding market, generating new high-margin revenue streams through cross-selling and upselling to its existing client base, this could result in a highly profitable expansion that private equity investors may later regret overlooking.
I hold and will be hoping to see the share price move back to challenge the £1 barrier again with optimism there could be a breakout above that level.
.