Outbrain Inc. OB shares have surged 63% in the past year, outperforming the 28.5% rally of its industry while underperforming the 64.1% rise in the Zacks S&P 500 Composite.

OB’s performance is significantly higher than that of its industry peers, MediaAlpha, Inc. MAX and UiPath Inc. PATH. MAX has gained 5.7%, while PATH has declined 42.9% over the past year.

One Year Price Performance

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The surge in Outbrain’s shares might be appealing to investors. However, the important question is whether this is the right time to invest. Let us find out.

Premium Media Owner Partnerships Aid OB

Outbrain is focusing on strengthening its premium media owner partnerships, which are among its key strategic assets. These relationships ensure a consistent base of premium exclusive inventory while providing OB with the unique contextual and engagement insights that drive its performance and predictive capabilities. Outbrain has renewed agreements with important publishing partners, including Huffington Post and Meteo in France.

The company has secured new business partnerships from competitors and launched partners, including Sports one Germany and Reuters and Newsweek in Japan. This shows Outbrain’s superior value proposition when it comes to relationships with premium publishers across the globe.

AI Integration Looks Promising for Outbrain’s Success

OB is propelling AI integration into its performance and creative offerings, improving efficiency and prospects with an aim at sophisticated large-scale advertisers. The company is doing so via its creative automation suite that allows marketers to use AI to create new ad images, tailor images and adjust headlines to drive better results swiftly.

The creative automation suite delivers more relevant and highly targeted creatives optimized for customer engagement using OB’s predictive insights to fuel the product’s gen-AI.

Furthermore, the company expanded its collaboration with Microsoft Azure, integrating Azure OpenAI solution to an array of OB’s services. Outbrain expects the Azure solution to continue improving its existing creative solutions, prioritizing ad creatives with anticipated higher return on investment.

OB’s FY24 & FY25 Top & Bottom-Line Prospects Look Strong

The Zacks Consensus Estimate for Outbrain’s 2024 revenues is pegged at $237.8 million, implying 4.6% year-over-year growth. The consensus estimate for 2025 revenues is pinned at 262.7 million, suggesting 10.5% year-over-year growth.

The consensus estimate for OB’s 2024 earnings stands at 12 cents per share, indicating a turn-around from a loss of 8 cents reported in the preceding year. For 2025, the bottom line is pinned at 30 cents per share, hinting at a more than 100% year-over-year upsurge.

Operational Inefficiencies Hurt Outbrain

In the fourth quarter of 2023, OB reported an operating profit of $5.7 million, after which it derailed. In the first quarter of 2024, the company recorded an operating loss of $6.6 million, and in the second and third quarters, it incurred losses of $5.6 million and $3 million, respectively.

In the third quarter of 2024, revenues increased 5% from the preceding quarter. However, this did not help the company fully recover its losses. We believe that OB’s inability to control costs is the reason behind its turbulent operating performance.

Looking at the traffic acquisition costs across the past four quarters, it seems that the company has been inefficient in attaining consistency. In the first quarter of 2024, the metric declined 11% sequentially, which then slipped 4% in the second quarter. However, in the third quarter, the same increased 4%.

Such a performance can be a red flag for investors unless the company can break even in the upcoming quarters and show persistence in generating an operating income.

OB’s Capital Returns Underperform Industry

Return on equity (ROE), a measure of profitability, reflects how effectively a company uses its shareholders' investments to generate earnings. OB’s trailing 12-month ROE is 2.2% compared with the industry’s average of 3.4%.

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Outbrain’s Liquidity Position Underperforms Industry

In the third quarter of 2024, the company’s current ratio of 1.2 underperformed the industry average of 2.16. The current ratio has declined 11.8% from the preceding quarter and 17.2% from the year-ago quarter.

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OB has a current ratio of more than 1, which implies that the company might be easily able to pay off short-term debt. However, the persistent decline of the company’s cash and cash-equivalent balance could hurt Outbrain’s liquidity position in the future.

Wait for the Right Entry Point for OB

Outbrain has a heightened focus on AI integration into its performance and creative offerings. The company’s partnerships with premium media owners, coupled with a strong top and bottom-line outlook, make the stock favorable for investing in the long run.

However, considering the operating loss incurred across the past three quarters, weak capital return and a concerning liquidity position, it is prudent to retain the stock in your portfolio. Monitoring the company’s ability to execute its AI-driven strategies should be instrumental to future investment decisions.

Outbrain carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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