Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Rentrak (UNKNOWN:RENT.DL), an entertainment analytics company for the movie, television, video, and advertising industries, were clobbered Friday, and fell by as much as 40% after reporting disappointing third-quarter earnings results and facing a number of subsequent analyst downgrades. Shares closed Friday down 30% from the previous day's close.
So what: For the quarter, Rentrak reported a 38% increase in revenue, to $26.9 million, which was boosted mostly by a 76% gain its TV Everywhere business, to $14.8 million from $8.4 million. With consumers able to access television content from multiple channels -- TV, laptop, tablet, and smartphone -- Rentrak's solution enables networks to keep tabs on the changing demographics of the audience.
In terms of the bottom line, Rentrak reported an operating loss of $0.19 per share, which widened from an $0.08-per-share loss in the year-ago period. Comparably, Wall Street was looking for revenue of $28.5 million and a much narrower loss of $0.07 per share.
More damaging, though, was Rentrak's announcement that its TV Everywhere business was only expected to grow between 70% and 80% in Q4, when prior expectations had forecast its lead product to grow by 80% or better. Rentrak also offered lower Q4 guidance than was expected by analysts.
Now what: Considering that Rentrak was valued very aggressively prior to this report, and it now appears to be growing its premier product at a slower rate, I can certainly understand investors' displeasure with the stock today.
During the company's conference call, management focused on using its lower price for its TV Everywhere product than its peers to draw in new clients. While it's a good long-term strategy that could pay benefits five years from now, it's probably going to pressure margins in the near term as it continues to build the infrastructure surrounding its TV Everywhere solution.
Even following today's drop, Rentrak is valued at a somewhat aggressive 20 times Wall Street's 2018 EPS forecast. Personally, I'd take today's tumble as a reminder that it's probably best to stick to the sidelines on Rentrak until it's healthfully profitable, and we get a better idea on whether its price-over-market-share strategy for TV Everywhere is going to pay dividends.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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