YUME’s Earnings Tumble Is Only the Beginning

YuMe (YUME), which operates an online video ad network, has continued to exact pain on its shareholders. Its latest earnings report was a huge disappointment. In today’s trading, YUME stock is off by 16%, down below $7.

yume-stock-yume-earningsKeep in mind that the company went public in August at $9.

In the fourth quarter, YUME reported revenues of $54 million (up about 19%) and earnings of 6 cents per share. However, the Street was looking for much more, at least on the top-line. The consensus for revenues was for $59.53 million. (Although YUME did beat by a penny on earnings.)

The underperformance was certainly discouraging, as it came during the holiday season, which generally has stronger ad expenditures. Just look at how well Facebook (FB) did during this period.

So, given YUME’s quarter, it should be no surprise that investors are dumping the stock. Analysts were also quick to downgrade YUME stock. For example, Citigroup (C) downgraded the stock from a “buy” to “neutral.”

What problems seem to be ailing the company? YUME faces intense competition from a slew of ad networks. If anything, it has hard to tell the differences among the players — and this certainly makes it tough for customers to select a vendor as well.

At the same time, YUME must compete against mega players like Apple (AAPL) and Google (GOOG). Oh, and it looks like Facebook is ramping up its own video efforts. In other words, there isn’t much left for companies like YUME.

The company is trying to improve its core technology, such as so-called programmatic ads. These are based on sophisticated algorithms, which tend to have better returns and also are easier to use when putting together campaigns. But unfortunately, there are many programmatic options on the market already.

Thus, YUME stock could face even further pressure over time. So don’t look at the latest drop in the stock as a bargain opportunity.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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