Outbrain (OB) shares are down nearly 20% so far today after its second-quarter earnings fell short of estimates. Outbrain is a recommendations platform for the open web.
Revenue inched up 1.5% year-over-year to $250.9 million, surpassing estimates by ~$4.5 million. Its net loss per share at $0.19, on the other hand, came in wider than estimates by a massive $0.15. While the increase in revenue came from growth in new media partners, net revenue retention at 91% impacted the top-line by $22.2 million.
Additionally, the present challenging macro environment has also meant lower demand and lower yields on the platform. Higher operating expenses impacted Outbrain’s bottom line this quarter, but the company expects its cost rationalization measures to yield results in the remainder of this year.
Looking ahead, for full-year 2022, Outbrain now expects “ex-TAC gross profit of at least $228 million and adjusted EBITDA of at least $18 million.” Ex-TAC gross profit is a financial metric arrived at by adding back other costs of revenue to the gross profits of a company. In the second quarter, Outbrain’s ex-TAC gross profit declined by 11% over the prior year period to $59.3 million.
Is Outbrain a Good Stock?
After declining 61.4% so far in 2022, the Street sees 89.2% potential upside in Outbrain stock, with a Strong Buy consensus rating alongside a price target of $10.20. OB currently has four Buys and one Hold rating assigned to it.
Hedge funds, too, are sharing Wall Street’s optimism over Outbrain, having increased holdings in the stock by 375,400 shares in the last quarter. This indicates a positive hedge fund confidence signal in the stock.
Conclusion: Cost-Saving Measures Bode Well for Outbrain
After the price correction so far this year, Outbrain shares could be attractive to investors, with a price-to-sales ratio of 0.3x and a price-to-cash-flow ratio of around 6x. Additionally, a focus on cost rationalization can put the stock in a good position in the coming periods.
