What happened

Shares of AcuityAds (NASDAQ:ATY) took a dive last month, after the Canadian ad tech company posted disappointing results in its third-quarter earnings report. During a time when many of its peers were strong growth in a favorable digital ad market, AcuityAds missed the mark and the stock finished November down 45%, according to data from S&P Global Market Intelligence.

The stock fell sharply in the beginning of the month, after the earnings report came out.

ATY Chart

ATY data by YCharts

So what

AcuityAds stock dropped 26% on Nov. 3, after the company posted sluggish growth in its third quarter, and the stock continued to decline from there as investors soured on the stock.

A woman looking at several TV images on a glass wall

Image source: Getty Images.

Revenue in the quarter grew just 5.4% to $27.5 million, or 11.3% on a constant currency basis. The company blamed the weak growth on lower ad spend from supply chain disruptions affecting legacy customers. Illumin, the recently introduced interactive platform that allows brands to follow each step of customers' ad experience and adjust their campaign accordingly, saw 42% sequential growth to $7.4 million, making up 27% of total revenue. Notably, without the revenue from Illumin, which didn't exist a year ago, revenue growth was negative.  

Like many of its peers, the company also saw strong growth in Connected TV, or ad-driven streaming TV, with revenue up 220%. On the bottom line, adjusted EBITDA increased from $4 million to $4.4 million, and it reported earnings per share of $0.06.

In response to the slow growth, a number of analysts downgraded the stock, as revenue actually fell from the second quarter. Lake Street analyst Eric Martinuzzi, for example, lowered his rating on the stock from buy to hold and slashed his price target from $22 all the $5. The growth story in the stock appears to be fizzling, especially as management's fourth-quarter forecast indicated continuing challenges, having only called for revenue growth and for "strong" adjusted EBITDA.

Now what

AcuityAds stocks peaked at $26.17 in February, and the stock is now down nearly 90% from the high. It's not surprising to see the stock crash after the recent earnings report, especially as the company had blamed slow revenue growth last year and weakness with its travel and hospitality customers.

Still, the ad tech stock could be a good turnaround candidate here, since Illumin is gaining traction and the valuation looks very reasonable, putting the stock in value territory.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.