Credit Suisse, Raymond James Find Some Positives Following RetailMeNot's Earnings
As shares of RetailMeNot (NASDAQ: SALE) have dropped more than 27 percent on Tuesday and traded at new 52-week lows of $18.42.
Analysts at Jefferies and Credit Suisse find reasons that a turnaround is possible.
Jefferies: Negativity Now Fully Priced In
Brian Pitz of Jefferies maintained a Buy rating in a note to clients on Tuesday. The analyst believes that the long-term traffic damage from Panda 4.0 is now priced in and RetailMeNot can now look focus on diversifying traffic away from organic search into mobile, e-mail and direct.
Pitz notes there are three compelling reasons to still buy shares, despite the price target lowered to $36 from a previous $47.
Firstly, Pitz is “cautiously optimistic” on the management team's ability to continue diversifying away from traffic from organic search. Second, the company's long-term secular thesis for online couponing is still intact. Finally, mobile is a core growth driver and is still in the early stages.
At a 10x EBITDA estimate versus a 25 percent 2014-2017 EBITDA compounded annual growth rate, RetailMeNot is one of the cheapest shares under the analyst's universe of e-commerce names.
Credit Suisse: Company Provided Clarity And Urgency
In a note to clients on Tuesday, Stephen Ju of Credit Suisse believes that RetailMeNot will once again see margin expansions in the future. As such, the analyst maintained a Neutral rating with a price target lowered to $32 from a previous $43.
“While we believe the Street anticipated the first order impact from Panda to overall traffic, RetailMeNot's second quarter report surprised with the second order impact in the mix shift to UGC and hence unpaid content,” the analyst wrote before adding that revenue per visit declined, and the resulting decrease to desktop monetization adds further emphasis on the company's long-term strategic initiatives in mobile.
Ju explains that it is not expected for the company to veer from its product development initiatives (such as mobile) and as such this will result in near- to medium-term margin compression. However, margin expansion will resume in the second half of 2015.
During RetailMeNot's conference call on Monday, the company's CEO Cotter Cunningham hinted at some of its mobile initiatives in the pipeline:
“We are expanding the services we provide retailers through our mobile app. During the second quarter, we tested two digital circular formats with over 20 retailers and saw positive consumer engagement across both. We expect to further expand our content and promotional services to retailers with our new mobile app release planed later this year. We also began opening up our proprietary RetailMeNot AB test offer testing platform to a few top pay retailers. Even largest retailers do not have the resources or infrastructure to build out testing platform, which forces many to struggle with visibility into their customer base and the optimization of their marketing channels.”
Elsewhere On The Street
Analysts at RBC Capital downgraded RetailMeNot to Sector Perform from Outperform. The analyst noted that the company's implied fourth quarter guidance implies an EBITDA margins recovery of around 1,000 basis points which may be overly aggressive. Additionally, as Google continues to expand its e-commerce offerings, the long-term challenge to RetailMeNot's fundamentals will be challenged.
Analysts at William Blair reiterated an Overweight rating and believes that the current valuation is attractive to investors who can tolerate short-term volatility. The analysts believe shares could have upside to $24 to $25 as the company continues to work through a decline in organic search traffic.
Latest Ratings for SALE
|Aug 2014||RBC Capital||Downgrades||Outperform||Sector Perform|
|Aug 2014||Credit Suisse||Maintains||Neutral|
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