UPDATE: Citigroup Reiterates on YuMe as Solid 3Q13 Report Assuages Concerns

In a report published Thursday, Citigroup analyst Mark May reiterated a Buy rating on

, but lowered the price target from $11.00 to $10.00. In the report, Citigroup noted, “YuMe reported a strong 3Q13 with results that topped expectations across the board—despite heightened concerns heading into the print—while management maintained full CY13 revenue guidance. Total revenue topped our above-consensus forecast by 3%, and adjusted EBITDA of 1.6mn topped the high end of guidance by ~3mn. Other highlights included: 1) total revenue growth accelerated for the second quarter in a row to up 39% y/y (vs. 36% in 2Q13 and 33% in 1Q13); 2) gross margin expanded 300bps y/y and 200bps q/q to just under 48%; 3) notably, YuMe offered a preview of its plans to become more involved in programmatic in 2014; and, 4) management suggested that they're considering potential share repurchases given current levels. We believe 3Q13 results support our positive fundamental view, which is grounded in the secular growth outlook for online video advertising, including greater spending by traditional brand advertisers and by the emergence of new channels like mobile and connected TV. That said, we're tweaking down our 4Q13 estimates because, as noted above, management maintained full year CY13 revenue guidance (despite the $1mn topline beat in the quarter) and only increased adjusted EBITDA guidance by ~$2mn (despite the $3mn beat in the quarter). We're lowering our price target to $10 from $11 off our slightly lower estimates and also given recent underperformance from the company's closest peers.” YuMe closed on Wednesday at $6.40.