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Summary

  • Rentrak reported earnings that missed on the top line and beat on the bottom line.
  • Shares are currently up 75% from a year ago.
  • Buy, sell, or hold this small cap disruptor?

Rentrak (NASDAQ:RENT) reported its FY 2015 Q1 earnings after the market close on August 8th. The company reported an adjusted loss of $.01 per share (after accounting for non-recurring costs), which beat estimates by $.09. Revenue was reported at $22.3M, which was slightly below consensus estimates, but showed 40% YoY growth. All in all, the quarterly results were good, and the company maintained relatively the same long-term guidance across its various business units that I have previously called out as a reason for owning this stock.

That being said, I would move to being more cautious on Rentrak in the near term. The company has significant opportunity to gain market share from Nielsen, and is doing so, but that is arguably reflected in the $500M+ market cap seen today while the company is growing revenue massively. However, this revenue growth is not yet translating into operating leverage and earnings which I believe will begin to drive away some investors. I also believe there is still a bit of takeover premium priced into the stock today, and while a takeover is certainly a possibility, the stock could see downside purely from time going by without any acquisition rumors hitting the wire.

Rentrak remains a fantastic growth story, and I stand by my original long-term thesis on this name, which was for 75% upside when the stock traded at around $23 per share. Given that the target has been met, and was previously exceeded earlier this year, I would turn cautious and reduce exposure to Rentrak or wait for a better entry point on this name.

Source: Update: Rentrak Q1 Earnings