Take a pass on Aterian, says Roth

Roth Capital Partners analyst Matt Koranda is sticking with a “Neutral” rating on e-commerce brand company Aterian Inc (Aterian Stock Quote, Charts, News, Analysts, Financials NASDAQ:ATER) in a Thursday note to clients, saying he’s looking for better fundamentals from the company by the second half of the year.

New York-based tech-enabled consumer products platform Aterian (formerly Mohawk Group) uses proprietary software known as Artificial Intelligence Mohawk Ecommerce Engine (AIMEE) to source data from a variety of e-commerce platforms via application program interfaces. The data aids in product development and sourcing, with Aterian’s products sold under a dozen brand names.

The company announced preliminary fourth quarter revenue on Thursday, projecting a Q4 topline of $54-$55 million and thus representing a full 2022 net revenue of $220.0-$221.0 million. The result for the quarter would represent about a 14 per cent year-over-year decline but would be at the high end of management’s previous $47-$55 million Q4 guidance. (All figures in US dollars.)

“We are executing on our plan to liquidate higher cost inventory and protect market share of our leading products in order to reach our target sustainable contribution margin. We continue to believe we are on the path to achieving Adjusted EBITDA profitability in the second half of 2023,” said Yaniv Sarig, CEO, in a press release. “Further, as a testament to my confidence that our trajectory is heading in the right direction, I have elected to receive almost all of my 2023 base salary in Aterian’s stock.”

Koranda said the projected Q4 revenue comes in ahead of both the consensus call at $49.5 million and his estimate at $50.4 million. At the same time, the analyst said the stronger-than-expected liquidation of higher-cost inventory will likely result in lower gross margins for the quarter.

Koranda noted that management now expects adjusted EBITDA profitability by the second half of 2023, seemingly due to bringing in lower cost inventory while having cleared out most higher-cost inventory by early 2023.

“We are maintaining our Neutral rating as we await evidence of sustained improvement in demand and more stability in margins. We expect more normalized margins may show up by mid-2023 as Aterian should be done cycling higher-cost inventory by 1Q23,” Koranda wrote.

By the numbers, Koranda is now calling for Aterian to generate full 2023 revenue and EBITDA of $220.2 million and negative $8.6 million, respectively, and 2024 revenue and EBITDA of $253.2 million and positive $7.6 million, respectively. The analyst maintained a 12-month target price on ATER of $1.25 per share, which at the time of publication represented a projected return of one per cent.