Time To Short? RetailMeNot Downgraded By Morgan Stanley, Drops 10%

RetailMeNot Inc SALE shares were up 35 percent since the company reported its Q2:16 results in early August and late last week, despite the results being mostly in line with expectations and the 2017 adjusted EBITDA guidance being revised down.

Morgan Stanley’s Brian Nowak downgraded the rating on the company from Equal Weight to Underweight, with a price target of $8.60.

Lackluster Results

“While 2Q top-line results beat expectations, we note that topline expectations were largely tempered given recent historical performance,” Nowak mentioned.

RetailMeNot reported its core revenues flat year-on-year, from the Q2:15 levels, which had seen a revenue decline of 10 percent year-on-year.

Related Link: Dougherty & Company Initiates Coverage On RetailMeNot At Buy, Announces $15 PT

Despite the appreciation in share price, the stock is currently trading at a discount to its growth adjusted valuation, the analyst pointed out, while noting that at 2 percent expected forward revenue growth, the company also had the lowest projected growth in the group.

Challenges Remain

“While better than feared 2Q results and the lack of any major negative impacts from Google algorithm changes likely drove the recent price appreciation, we believe that many of RetailMeNot’s issues remain,” Nowak stated.

The analyst noted that mobile continued to be a headwind, since monetization rates were a fifth that of desktop, while traffic growth continued to be challenged.

“We note while mobile traffic growth has decelerated this year, our estimates call for a return to growth in 2017 and 2018 and for desktop to see improving trends,” Nowak added.

At time of writing, RetailMeNot was down 10.01 percent on the day to $10.34.

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