Outbrain's Onyx Platform Will Attract New Clients Delivering Premium Revenue Share, Bullish Analyst Says

Needham analyst Laura Martin reiterated a Buy rating on Outbrain Inc.OB, raising the price target to $6.50 from $5.50.

The analyst projects a larger total addressable market for Outbrain, banking on the new Onyx platform.

Onyx is a video advertising product for OB's Supply-Side Clients only, notes the analyst. Onyx integrates into all Open Internet DSPs (including TTD, DSP, ILLM, etc), in addition to OB's captive DSP.

Martin adds that the Onyx platform will attract new upper-funnel ad budgets from this group. 

The analyst believes that OB's new full-funnel capability will command a premium rev share (i.e., higher take rates), add TAM, attract new clients, and get a larger share of ad budgets from current clients.

Martin thinks that Outbrain can charge a premium for its new full-funnel product suite, from awareness (Onyx) to performance.

Historically, OB has focused on text ads on mobile devices. Onyx's goal is to deliver full-screen video ads to mobile devices, Martin notes.

OB's performance-based clients have been willing to allow the company to use generative AI to write titles, taglines, and advertising copy, because, through A/B testing, OB can demonstrate in real time that ROAS (return on ad spending) improves. 

However, brands distrust generative AI and want manual control and veto power over every aspect of their ad campaigns, notes the analyst.

For Q2, the analyst expects revenues of $55 million. For FY23, Martin projects OB's revenues to grow 0.9% Y/Y to $237 million, with an EPS loss of ($0.18).

FY24 revenues are projected to grow 15.6% to $274 million, with EPS of $0.03.

Price Action: OB shares are trading lower by 1.35% to $5.10 on the last check Monday.