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Friday, December 9, 2022

Understanding MediaAlpha’s Risk Factors Post Q2

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Shares of MediaAlpha, Inc. (MAX), a technology platform that brings insurance carriers and consumers together, have trended 56.4% lower over the past six months. The company missed the Street’s estimates in the second quarter of fiscal 2021 on both revenue and earnings fronts. 

In such a scenario, it bodes well for investors to take a look at MediaAlpha’s financials and understand what has changed in its key risk factors.

MediaAlpha’s second-quarter revenue jumped 27% year-over-year to $157 million, marginally missing analysts’ estimates of $158.7 million. During this period, its revenue from Property and Casualty rose 23% over the previous year. Also, the transaction value of the company registered a 46% year-over-year rise in the second quarter.

The Co-Founder and CEO of MediaAlpha, Steve Yi, said, “Our focus on Transaction Value reflects our ability to successfully continue to capture market share and build our leadership as the industry moves online.

We are well-positioned to drive the industry’s transformation to digital advertising long-term as the most trusted customer acquisition partner to the insurance industry with the largest-scale and most transparent platform.”

Meanwhile, the increase in MediaAlpha’s total costs and operating expenses resulted in a net loss per share of $0.01. Analysts had expected net earnings per share of $0.01 during this period. (See MediaAlpha stock chart on TipRanks)

For the third quarter, the company sees revenue landing between $158 million and $165 million. It expects adjusted EBITDA between $14.5 million and $15.5 million.

On August 18, RBC Capital analyst Frank Morgan reiterated a Buy rating on the stock but decreased the price target to $41 from $65. The analyst noted that the decreased price target reflects “multiple compression among MediaAlpha’s peers and near-term uncertainties over digital customer acquisition budgets.”

Based on 3 Buys and 1 Hold, the stock has a Strong Buy rating. The average MediaAlpha price target of $41 implies 76% upside potential.

Now, let’s look at what has changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, MediaAlpha’s main risk category is Finance & Corporate, which accounts for 37% of the total 71 risks identified. Since June, the company has changed two key risk factors under the Finance & Corporate risk category.

In its first risk, MediaAlpha acknowledges that under Section 404 of the Sarbanes-Oxley Act, it is required to furnish a report on the effectiveness of its internal control over financial reporting as of the year ending December 31, 2021. This is a time-consuming, costly and complicated process. If the company fails to achieve and maintain adequate internal controls or effective disclosure controls and procedures then it could negatively affect its business, results and financial condition. Additionally, the company’s stock price may take a hit.

Highlighting its second risk, MediaAlpha states that it presently comes under the ’emerging growth companies’ category. Based on the aggregate market value of its class A common shares held by non-affiliates, the company will be classified as a ‘large accelerated filer’ beginning with its annual report on Form 10-K for the year ended December 31, 2021.

Consequently, MediaAlpha will lose certain exemptions from various public company reporting requirements it enjoys at present, and, hence, its legal and financial compliance costs will see an increase. The company is making changes to its internal controls and procedures to meet these requirements. These additional measures and associated higher costs may impact MediaAlpha’s business and financial condition adversely.

The Finance & Corporate risk factor’s sector average is at 39%, compared to MediaAlpha’s 37%.

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The post Understanding MediaAlpha’s Risk Factors Post Q2 appeared first on TipRanks Financial Blog.

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