Is Outbrain (OB) The High Growth Low Debt Stock to Invest in Now?

In the ever-evolving landscape of technology stocks, Outbrain Inc. (OB) has emerged as a company with a compelling narrative. With a 7% year-over-year increase in headcount and a 50% year-over-year increase in net revenues from its bidding technology platform in the third quarter of 2024, Outbrain appears to be on a trajectory of growth. However, the question remains: is Outbrain the high-growth, low-debt stock to invest in now?



The Bull Case for Outbrain

Outbrain's recent financial performance paints a picture of a company that is effectively managing its workforce while achieving significant revenue growth. The company's diversification strategies have paid off, with non-feed revenues expanding for eight consecutive quarters and contributing 30% of total revenues in the fourth quarter of 2024. This diversification is a significant opportunity for Outbrain, as it reduces reliance on traditional news feeds and opens up new revenue streams.

The company's debt-to-equity ratio of 0.05 is significantly lower than its peer, Observe Medical ASA, which has a debt-to-equity ratio of 357.4%. This indicates that Outbrain is in a much stronger financial position with less debt relative to its equity compared to Observe Medical ASA. Additionally, Outbrain's total assets are 73% greater than its total liabilities, showing a healthy balance sheet. In contrast, Observe Medical ASA's total liabilities are 84% of its total assets, indicating a higher level of financial risk.

Outbrain's financial health metrics also compare favorably to its peers. For instance, Outbrain's quick ratio has declined by 8% year-on-year but has grown by 2.8% since the previous quarter, indicating that the company has enough short-term assets to cover its short-term liabilities. In contrast, Observe Medical ASA's current ratio is 3.04x, which is considered high and may indicate that the company is holding too much cash or other liquid assets.

The Bear Case for Outbrain

Despite the promising growth metrics, there are significant risks to Outbrain's financial performance. The company's fiscal year 2024 estimates indicate a slight decline in gross revenue by 1% year-over-year, while adjusted EBITDA is only projected to grow by 30% against a backdrop of decreasing earnings per share compared to the previous year. Additionally, the long-term outlook reflects a troubling trend with a projected 10-year EBITDA growth rate of negative 3.4%, suggesting serious concerns about sustainable profitability.

Economic and advertising weakness could hinder revenue growth, as well as challenges in attracting and retaining AI talent. The company's fiscal year 2024 estimates indicate a slight decline in gross revenue by 1% year-over-year, while adjusted EBITDA is only projected to grow by 30% against a backdrop of decreasing earnings per share compared to the previous year. Additionally, the long-term outlook reflects a troubling trend with a projected 10-year EBITDA growth rate of negative 3.4%, suggesting serious concerns about sustainable profitability.

Analyst Sentiment and Price Target

As of March 22, 2025, Outbrain has a Buy consensus rating from 7 analysts, with 14% recommending a Strong Buy, 29% recommending Buy, 57% suggesting Holding, 0% advising Selling, and 0% predicting a Strong Sell. Wall Street analysts have set a price target of $7.49, reflecting a 0.00% increase from the current stock price. However, ratings and forecasts are frequently updated based on market conditions, earnings reports, and industry trends.



Conclusion

Outbrain's recent revenue growth and diversification strategies have shown promising results, with non-feed revenues expanding for eight consecutive quarters and contributing 30% of total revenues in the fourth quarter of 2024. However, there are also potential risks associated with its reliance on non-feed revenues. The company will need to continue to innovate and adapt to changing market conditions to maintain its competitive edge and drive future financial performance.

In conclusion, while Outbrain's diversification strategies have shown promising results, there are also potential risks associated with its reliance on non-feed revenues. The company will need to continue to innovate and adapt to changing market conditions to maintain its competitive edge and drive future financial performance.