Albert Fried & Company maintained an Underweight rating on Rentrak (NASDAQ: RENT) with a price target of $48. Comments follow Q1 results and guidance. Analyst Rich Tullo noted that FY16 was off to a "rough start," and warned competing technologies could supplant Rentrak.

"One of the core reasons why we downgraded RENT shares is the possibility that data would become a strategic weakness in the Rentrak model as Programmers and MVPDs seek to control STB user data following affiliate fee negotiations. Our argument is as follows: If Content Programmers control data then the Programmers have to make concessions if they do targeted advertising. We Native Data lowers data availability to Rentrak and raises costs. Native Data also creates the need to integrate on the DSP to do programmatic advertising which we think makes Rentrak redundant," said Tullo.

"We also don’t like the long term prospect for the Movie industry on its current course. Revenue may be ok today but we think attendance is lousy based on channel checks. We do not think charging $3.75 for Minions Twinkies as audiences become extinct is a sustainable model. Our view is the movie experience in the home has improved and families will send the $100 to $200 saved by not going to movies on things like food and clothing," continued the analyst.

Tullo added, "Operating Income $1.5 million beat our estimate (266k) but the earnings quality was poor. The beat was not attributed to recurring operations. Rentrak adjusted its earn-out arrangement with iTVX, and recorded a benefit of $3.7 million because it was determined that only the minimum earn-out provisions would be achieved. Excluding iTVX Rentrak reported operating income of ($2.2 million) which was well below our estimates and contra to the high thinking on Wall Street arguing Rentrak has operating leverage. As Rentrak has to buy Data to meet client needs and to stay relevant we think operating leverage may not be as great as out noble peers expect."

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Shares of Rentrak closed at $60.30 yesterday.