NeuLion’s improving margins are a good sign, says Cantor Fitzgerald

In its second quarter, NeuLion’s (NeuLion Stock Quote, Chart, News: TSX:NLN) revenue and EBITDA fell below expectations, but Cantor Fitzgerald Canada analyst Ralph Garcea likes where the company’s margins are headed.

Yesterday, NeuLion reported its Q2, 2016 results. The company lost (U.S.) $776,000 on revenue of $24.1-million, a six percent besting of last year’s Q2 topline of $22.7-million.

“Following our recent changes in management and our Saffron Digital acquisition, we have begun our expansion in the U.S and Europe with aggressive sales and marketing investments,” said CEO Roy Reichbach. “Our technology is best in class and now is the time to match our sales and marketing prowess with our technology development skills.”

Garcea notes that NeuLion’s second quarter revenue fell below his expectation of $25.4-million and the street consensus of $26.8-million, as did the company’s EBITDA of $3.3-million against his expectation of $5.1-million and the street’s $5.9-million. The analyst, however, sees margin grwoth as a key positive metric for the company.

“As NLN secures more customer wins, we see gross margin growth across the business,” says Garcea. “Areas of focus for expansion and new customer wins are Asia and Europe, where revenues were up 25% and 135% y/y, respectively. North America continues to be a stronghold for NLN, accounting for 57% of total quarterly revenue.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $2.15 on NeuLion, implying a return of 111 per cent at the time of publication.

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