On Thursday, Citi adjusted its outlook on Outbrain Inc (NASDAQ:OB), reducing the price target to $5.30 from the previous $5.50. Despite the change, the firm maintained a Neutral rating on the stock. The adjustment follows Outbrain's third-quarter results for 2024, which aligned with expectations. The company's adjusted EBITDA was notably better, although this was somewhat balanced by a weaker-than-anticipated forecast for fourth-quarter ex-TAC (traffic acquisition costs).
The primary focus for analysts and investors is on Outbrain's impending acquisition of Teads, which is seen as a significant and potentially transformative event for the company. The process appears to be moving smoothly, with Outbrain's shareholders scheduled to vote on the transaction on December 5, 2024. This acquisition is particularly noteworthy due to its scale and the potential it has to reshape the company's future.
Outbrain's profitability trends in the third quarter were more promising than expected, which has been attributed to successful efforts in optimizing the company's cost structure. While the guidance for the fourth quarter's ex-TAC was below initial expectations, there is a belief that the forecast may be conservative. The observed softness in October is thought to be a temporary effect, with advertisers reducing spending due to uncertainties surrounding the U.S. election.
The core business of Outbrain appears to be stable, with the company launching new products, expanding off-platform spending, and enhancing its full-funnel product offerings. These initiatives are aimed at attracting not just performance-based spend but also larger brand spend, indicating a strategic effort to diversify and strengthen the company's revenue streams.
In other recent news, Outbrain Inc. has made significant strides in its proposed acquisition of Teads, a global media platform. The mandatory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has expired, marking a key step in the merger process. However, the acquisition is still pending other conditions, including international regulatory approvals.
Outbrain's Q2 performance showed a year-over-year adjusted EBITDA of $7.4 million, doubling from the previous year, and a positive free cash flow for the fourth consecutive quarter. With a healthy $229 million in cash, cash equivalents, and marketable securities, the company continues to demonstrate its profitability and operational efficiency.
In terms of future expectations, Outbrain anticipates Q3 ex-TAC gross profit to range between $58 million to $62 million and adjusted EBITDA to fall between $8 million to $10.5 million. The company also maintains its full-year 2024 guidance and increases adjusted EBITDA guidance to $31.5 million to $36 million.
InvestingPro Insights
Outbrain Inc (NASDAQ:OB) has shown resilience in a challenging market, as evidenced by recent InvestingPro data. The company's stock has demonstrated a significant return over the last week, with a 10.96% price total return. This short-term performance aligns with the article's mention of promising profitability trends in the third quarter.
InvestingPro Tips highlight that Outbrain is trading near its 52-week high, with the current price at 95.47% of its 52-week peak. This suggests investor confidence in the company's recent performance and future prospects, particularly in light of the pending Teads acquisition mentioned in the article.
Another relevant InvestingPro Tip indicates that Outbrain holds more cash than debt on its balance sheet. This strong financial position could be crucial for the company as it navigates the upcoming acquisition and continues to invest in new products and off-platform spending initiatives discussed in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Outbrain, providing a deeper understanding of the company's financial health and market position.
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