WM Technology: Top Takeaways From the Pot Stock's Q3 Earnings

WM Technology (MAPS) may be a new name to some investors. The cannabis stock reported its quarterly earnings in November. Despite healthy revenue growth during the quarter, the stock sank on the news. Over the past six months, the stock has declined about 60%. In this segment of Backstage Pass, recorded on Nov. 17, Fool contributors Rachel Warren and Brian Withers discuss the company's third-quarter report and the company's outlook. 

Rachel Warren: I'm going to explain what they did before I dive into quarterly earnings. It's funny because this is the company that we've had quite a few members ask about during recent shows in the Slido, so I was excited to read a little bit more about it. For anyone who is not familiar with WM Technology -- or Weedmaps, as it's most commonly known -- the company's been around for a long time.

It was founded in 2008. It's technically a cannabis stock. It has two sides to its business, and it's not a retailer or a cultivator, so you're traditional image of a cannabis stock. You could technically say that it's an ancillary provider because it provides essential services to cannabis companies.

WM Technology has two sides to its business. One is its consumer-facing platform, and that's where consumers can find information about cannabis providers in their area, cannabis products, they can order online, see local retailer and brand listings. Essentially, the Weedmaps platform, it's a great way for retailers to connect with consumers.

On the other side of the WM Technology business, it offers cloud-based software and data solutions to cannabis providers. Its product suite includes point-of-sale, logistics, wholesale, and ordering solutions. Essentially, cannabis companies can scale their businesses and operate them efficiently.

WM Technology just listed on the Nasdaq this past June, at the time the company was called WM Holding. It went public via SPAC by combining with Silver Spike Acquisition Corp, the new company being WM Technology. What's interesting about this stock, it has not been a very high performer, as you'll see in a moment when I show the chart. The stock is down about 40% over the last month alone. But the company has a very long history of profitability. Between 2014 and 2020, its revenue grew at a compound annual growth rate of about 35% and had a really overall, I think great third quarter.

One thing to note with this company, they have, I don't know that this has been resolved yet, they had been under an investigation allegedly by the Justice Department with concerns about unlicensed cannabis companies advertising on their platform. I have not seen any recent news about that and I don't necessarily think that's factoring into what we're seeing here with the stock price.

I am just going to share my screen here really quick. Give it a second to load. So WM Technology, still loading. There we go. WM Technology, they reported their earnings about a week ago. As you can see here, this has been a market trailer over the last, not quite six months since it went public.

It has vastly under performed the broader market, which I find interesting given the fact, it had a really strong track record, like I mentioned, of profitability before it went public and it has continued that streak as a public company. Just a brief overview, analysts were expecting earnings per share of $0.01, the company came in just a little bit above that at $0.02.

A bit of a mixed with revenue analysts were projecting revenue of $51.66 million and the company came in a little bit below that at $50.9 million. But a lot of things I liked about this report, the revenue was up 9% year-over-year. Notably, 46% in the US. Its revenue from U.S. clients alone, not counting its Canadian customers, because that was a pretty big jump.

Monthly active users on its platform were up 37% year-over-year. Average monthly revenue per paying client seven percent year-over-year. A little bit of a more modest rate of growth in its average monthly paying clients at the end of the third quarter. But still positive at 2% year-over-year. Excellent gross profit margin and net income. By far the biggest jump I saw all of these financial metrics.

Its bottom line grew 217% year-over-year. I think this number here adjusted EBITDA, what a lot of analysts have been saying is potentially driving at least some of the stock's decline, so that was down from the year-ago period. But again, all these other numbers looked really great during the quarter.

A couple other things to note, WM Technology acquired Sprout during the third quarter, which is another cloud-based CRM marketing platform for cannabis providers, as well as the parent company of several different companies that provide cannabis logistics and integration software.

Again, really growing its technology suite within the cannabis space. It has a really strong cash store, closed the third quarter with $78 million in cash versus just about $38 million of liabilities due in the next year.

The company is projecting between $50-$52 million in the upcoming quarter, although it is expecting a slight sequential decline for its adjusted EBITDA. Again, that may be driving some negative investor sentiment, but I find this to be a really interesting stock.

I write about cannabis stocks a lot. I haven't really focused so much on this one in the past and it provides this interesting intersection of the growth we're seeing in the cannabis industry with the technology side. Clearly that hasn't caught up with its stock price. I'm not sure if this is one I would necessarily buy right now. I think I'd want to do a little more research on it, but I do think it's one to watch. I think it's a good one.

Brian Withers: Yeah it's still a really small company.

Rachel Warren: Yeah.

Brian Withers: Sorry.

Rachel Warren: Don't choke. It's OK. [laughs] I can keep talking. [laughs]

Brian Withers: I breathed in and it didn't it work. [laughs]

Rachel Warren: You're OK there? [laughs]

Brian Withers: Yeah. There we go. If you annualized this quarter's revenue, it's about $200 million for annual revenue and the stock's about a billion in market cap. It's really small ones still and as companies come public sometime, a lot of the times you will see six months after they go public, the stock is lower than when it IPO-ed.

I don't know that there's anything fundamentally wrong with the business. It's just the market is trying to figure out what its valued at. Thanks for bringing that one to the table.