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Today is shaping up negative for MediaAlpha, Inc. (NYSE:MAX) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
Following the latest downgrade, the current consensus, from the seven analysts covering MediaAlpha, is for revenues of US$583m in 2022, which would reflect a small 5.1% reduction in MediaAlpha's sales over the past 12 months. Per-share losses are expected to explode, reaching US$0.55 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$671m and losses of US$0.20 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
Check out our latest analysis for MediaAlpha
The consensus price target was broadly unchanged at US$19.64, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on MediaAlpha, with the most bullish analyst valuing it at US$38.00 and the most bearish at US$14.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. Over the past year, revenues have declined around 3.9% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 6.8% decline in revenue until the end of 2022. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 13% annually. So it's pretty clear that, while it does have declining revenues, the analysts also expect MediaAlpha to suffer worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at MediaAlpha. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that MediaAlpha's revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on MediaAlpha after the downgrade.