Tremor Video (TRMR) has a bad case of the shakes that investors are bound to feel all too soon.
Stock in the New York-based ad tech company is up around 39% in the past month following hype that the ad tech sector may be consolidating, plus cautious hopes that the new CEO can somehow turn this trembling craft toward something it’s never seen before – profitability.
But TheStreetSweeper believes the severely misplaced optimism has actually primed the stock for a swift drop.
Investors may read the company’s viewpoint here. Meanwhile, consider the top six reasons we consider Tremor tremble-worthy:
*1. Take-Out Bummers
Let’s consider the buyout situation revolving around Rocket Fuel, Tube Mogul and YuMe.
*One sage rightfully called Rocket Fuel (FUEL) a unicorn-turned-unicorpse as that company recently agreed to be taken private via acquisition by Sizmek. The buyer in this take-under sure didn’t want to pay a premium. Desperate Rocket Fuel shareholders snapped up the $2.60 per share offer even though the stock had been trading above that price. Poor ol’ Rocket Fuel had fallen to a shadow of its former self.
*Adobe’s decision to take out Tube Mogul (TUBE) in November 2016 at $14 per share was a bit of a disappointment because the buyout price was really very close to TUBE’s attempted IPO price of $11 and $13, before coming out at just $7 due to weak investor demand. Yet this blah buyout is considered the most successful of all.
*Activist investors have pushed YuMe (YUME) to sell for nearly two years. It’s still not clear that a buyout will ever happen, yet an odd potential suiter, RhythmOne, stepped forward Wednesday.
This is a real knee-slapper because San Francisco-based RhythmOne loses money, trades on the London Stock Exchange and is the former Blinkx.
Blinkx shares got clobbered after Harvard professor Benjamin Edelman wrote a January 2014 blog, “The Darker Side of Blinkx,” in which he called the company’s two key acquisitions perpetrators or facilitators of advertising and click fraud.
Regardless, after some consideration, the market’s not really into this RhythmOne talk. The chart below shows the intra-day action.
*2. Unfortunate Twin
Another troubled ad tech company is The Rubicon Project (RUBI), which is trading below cash levels and at all-time lows, down 80%.
Tremor and RUBI turn in similarly disappointing revenue and losses:
(Sources: Yahoo, TheStreetSweeper)
Tremor offers shareholders even worse margins and returns than RUBI.
*3. Beaten Up Sector
Meanwhile, from Rocket Fuel to YuMe to Tremor, this sector is clearly down.
Tremor turns in the worst metrics in the sector.
So, we believe even in this struggling atmosphere, Tremor has a worse chance of getting acquired than most any company in the sector. Even if it were a better target, the company has anti-takeover provisions which would discourage any activist.
“Anti-takeover provisions in our certificate of incorporation and bylaws as well as provisions of Delaware law might discourage, delay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress the price of our common stock.”
And then there are the technology problems…
*4. Forrester: Tremor’s Poor Platform
Tremor offers only mediocre, largely indistinguishable ad technology which Forrester Research found is a far weaker performer compared with existing solutions.
Tremor’s overall weak position versus not only small companies but also giants like Facebook and Google add to our conviction that Tremor won’t be taken out at anywhere near these levels.
*5. Financial Issues
Tremor is now enduring a substantial decline after some good years. In 2016, sales shrunk over 4%.
(Source: Marketwatch, TheStreetSweeper)
And the loss smack-down continues year after year.
Recent quarterly losses have extended the trend.
Tremor’s returns are miserable.
(Source: MarketBeat, TheStreetSweeper)
Yet, despite these numbers and earnings per share of $-0.05, analysts have slapped Tremor with inexplicable $2.75 to $4 price targets for the next 12 months.
Analysts anticipate a loss of $-0.23 this year and actually predict $+0.02 next year.
Tremor filings say it has “incurred operating losses since we were formed and expect to incur operating losses in the future…We may never be able to generate sufficient revenue to achieve or sustain profitability.”
It would be ridiculous to expect Tremor to turn a profit next year or the year after or the year after… Something insiders may be telling us …
*6. Insiders Sell
Unfortunately, with the exception of the goodwill effort by new CEO Mark Zagorski, insiders have been selling. Directors and major stockholders have sold more than 370,000 shares of their Tremor stock since last August at prices well below the current level.
(Source: CNN.com chart shows largest transactions)
We believe Tremor is a poor performer that will never achieve profitability and should be trading at a level more compatible with its unprofitable peers. Tremor’s enterprise-value-to-sales of .6 should be aligned with RUBI, YUME and FUEL’s approximate average of .3.
So TheStreetSweeper believes a 50% drop in Tremor stock would be a fair valuation.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in TRMR and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to firstname.lastname@example.org.