UPDATE: Morgan Stanley Cuts RetailMeNot Inc. (SALE) to Underweight
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(Updated - September 12, 2016 1:45 PM EDT)
Morgan Stanley downgraded RetailMeNot Inc. (NASDAQ: SALE) from Equalweight to Underweight with a price target of $8.60 (unchanged). Analyst Brian Nowak thinks valuation has gotten ahead of the fundamentals.
The analyst explained, "RetailMeNot has appreciated ~35% since the company reported 2Q:16 results in early August, despite essentially in-line results and 2017 adj. EBITDA being revised downward by $8mn (or 15%). While 2Q top-line results beat expectations, we note that topline expectations were largely tempered given recent historical performance."
Nowak added, "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: namely 1) mobile continues to be a headwind as monetization rates are 1/5th that of desktop, and 2) traffic growth remains challenged as desktop continues to decline double digit y/y and mobile, which had been a growth driver, has been essentially flat y/y for the past two quarters. 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, indicating that even our 2017 estimates are arguably baking in an optimistic scenario."
Shares of RetailMeNot Inc. closed at $11.49 yesterday.
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