The latest analyst coverage could presage a bad day for Synacor, Inc. (NASDAQ:SYNC), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the four analysts covering Synacor provided consensus estimates of US$86m revenue in 2020, which would reflect a disturbing 23% decline on its sales over the past 12 months. Per-share losses are expected to creep up to US$0.30. However, before this estimates update, the consensus had been expecting revenues of US$99m and US$0.23 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 7.0% to US$2.22, implicitly signalling that lower earnings per share are a leading indicator for Synacor's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Synacor, with the most bullish analyst valuing it at US$3.00 and the most bearish at US$1.65 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 23% revenue decline a notable change from historical growth of 4.4% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 12% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Synacor is expected to lag 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 Synacor. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Synacor.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Synacor analysts - going out to 2023, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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