• by Larissa Faw , July 29, 2016

MDC Partners shares plunged 30% Friday to $12.76 after the firm disclosed second-quarter financial results late Thursday that missed analysts’ expectations and disappointed investors. 

The company reported flat revenues for the quarter and organic growth of just 0.3%. 

MDC cited several reasons for the poor quarterly performance, including client losses, and a delay between winning accounts and actually monetizing those accounts. 

Shares in the company are down nearly 42% since the beginning of the year. 

Even short seller Daniel Yu -- whose Gotham City Research published a scathing 40-page report in April comparing MDC to Valeant Pharmaceuticals -- says he is surprised at how dramatically the company’s performance has declined.   

In an email to MediaPost, Yu writes: "MDCA's results were bad. In fact, they were worse than we expected! MDCA is bleeding cash and is very low on cash. The company is in a very weak financial position. If I were an employee at MDC or one of its acquired companies, I would be actively looking for another job elsewhere...before it's too late. I would try to get out ASAP." 

TheWall Street Journal reported that Jefferies analyst John Janedis downgraded MDC’s stock from buy to hold. “With an ongoing SEC investigation, several disappointing earnings results, and weaker than expected outlook for 2H16, we are throwing in the towel on MDCA,” he wrote.

BMO Capital Markets Dan Salmon reiterates his "outperform" rating, writing that "a 2Q miss and lowered guidance for the year will require rebuilding credibility (and the SEC investigation remains an obvious overhang.) But this is the life of a small cap agency at times, and this is exactly the type of wall of worry against which outsized stock gains often occur." He believes "this is the time for more conviction, not less." 

Albert Fried's Richard Tullo downgraded the company Friday morning when the stock was down 30% and then upgraded it in the afternoon because he believes this bargain-basement stock price means the company is now a great deal. The company's underlying dynamics still work despite these distractions. "Hopefully they get their act together or maybe they are at such a point, they know they can beat [their results]." 

Tullo also sees MDC as an acquisition target. "It's financially feasible, the only problems would be personality, patience and time." He pegs Publicis as the most likely suitor. "They are the only group that has lost market share" and are in a financial position to easily absorb the network, he said, pointing out how they can borrow at a low interest rate to help make the price worth the cost in about five years.