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Analyst Blog

On Jul 2, 2014, Zacks Investment Research downgraded Conversant Inc (CNVR - Snapshot Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Although Conversant reported better-than-expected first-quarter 2014 results, management provided cautious second-quarter outlook due to bankruptcy of a client, which will hurt its CRM revenues.

For the second quarter of 2014, Conversant expects revenues in the range of $135.0–$140.0 million, much higher than $128.1 million reported in the year-ago quarter. The Zacks Consensus Estimate for the second quarter is expected to be $138.0 million, in line with the mid-point of the company’s guided range.

Conversant forecasts revenues from Affiliate Marketing to be in the range of $39.0 to $40.5 million. Media revenues are expected to be in the range of $95.5 to $99.5 million.

Adjusted EBITDA is expected to be in the range of $42.0 to $44.0 million, slightly down from $46.8 million reported in the year-ago quarter. This remains a concern as higher mix of low-margin mobile and video revenues will hurt profitability in the near term.

Non-GAAP earnings are expected to be in the range of 34–35 cents per share, much better than 16 cents reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at 31 cents.

Moreover, intensifying competition remains a major concern. Ongoing hiring will also increase operating expenses that will put margin under further pressure in the near term.

Owing to the present headwinds, analysts remain highly apprehensive, as is evident from the downward estimate revisions. Over the last 60 days, the Zacks Consensus Estimate fell 8.7% to $1.57 per share for fiscal 2014, while the same for fiscal 2015 declined 7.9% to $1.74 per share.

Other Stocks to Consider

Some better-ranked stocks include LivePerson Inc. (LPSN - Snapshot Report), Google (GOOGL - Analyst Report) and LinkedIn (LNKD - Analyst Report). While LivePerson sports a Zacks Rank #1 (Strong Buy), Google and LinkedIn have a Zacks Rank #2 (Buy).

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