On Wednesday, B.Riley resumed coverage on Outbrain Inc (NASDAQ:OB) stock, issuing a Neutral rating with a new price target of $4.50. The firm highlighted Outbrain's role in providing content recommendation feeds for major media publishers, including CNN, New York Post (NYSE:POST), and Axel Springer.
However, the company has faced challenges due to decreased demand in the advertising sector and an oversupply of new publisher deals, which have impacted Outbrain's core business revenues and margins.
Outbrain's revenue, excluding traffic acquisition costs (TAC), declined year-over-year in FY22 and FY23. Additionally, adjusted EBITDA margins have seen a reduction from 32.7% in FY21 to low double digits in the following two fiscal years.
Despite these challenges, B.Riley noted positive developments with Outbrain's Keystone and Onyx products, which are expected to foster more robust relationships with publishers and provide opportunities for expanding advertising wallet share through high-impact video campaigns.
The firm anticipates that Outbrain's focus on offerings with higher take rates and a more efficient cost structure may lead to revenue growth and margin expansion in the second half of FY24 and into FY25. While acknowledging that Outbrain's valuation is currently low, with an FY24E EV/adjusted EBITDA multiple of approximately 3.5x, B.Riley remains cautious due to near-term supply issues and potential geopolitical uncertainties.
The firm suggests that a more favorable stance on the stock might be warranted upon seeing further evidence of the company's ability to accelerate growth and improve margins in the upcoming periods.
InvestingPro Insights
Outbrain Inc (NASDAQ:OB) presents a mixed financial landscape according to the latest data from InvestingPro. With a market capitalization of $203.09 million, the company is trading at a P/E ratio of 20.6, which may seem reasonable considering its PEG ratio of 0.23, indicating potential for earnings growth relative to its P/E. However, Outbrain's recent revenue decline of 5.67% in the last twelve months as of Q4 2023, along with a slight decrease in quarterly revenue, suggests that the company is experiencing some headwinds.
InvestingPro Tips highlight that Outbrain holds more cash than debt on its balance sheet and is trading at a low revenue valuation multiple, which could be seen as a positive sign for investors seeking undervalued stocks. Moreover, the company's gross profit margin stands at 19.75%, which, while not overly strong, still indicates some level of profitability over the past year. Outbrain's liquid assets also exceed its short-term obligations, providing a cushion for operational flexibility.
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