A quick note to update members of the Groove VC community on happenings with our two focus stocks, Inuvo and Remark Media.
Inuvo (NYSE Mkt: INUV) has had very little news flow or PR activity since our last update, but we expect to hear from the company soon with the release of its Q4 2013 results. As discussed previously, we believe the company will report a strong quarter in terms of its bottom line, though we do expect to see some contraction in the top line due to the holiday slowdown in web traffic that occurs each year leading up to the Christmas and New Years Day holidays and the impact that has on ALOT and other Inuvo owned web properties.
Remark Media (Nasdaq: MARK) has continued to be a mover and shaker, announcing late last month that the company has acquired taxextension.com. The tax extension business should be quite complimentary to its existing FileLater.com and Irs.com business and could not come at a better time, as most US consumers are starting to file their personal income tax returns. Remark shares have continued to climb and most recently have been in a trading range between $5.25 and $6.25.
Holders of Remark Media shares cannot help but watch the action in the IPO market with great anticipation, as investors continue to bid up the shares of just about every new issue that comes to market. The time for a Sharecare IPO filing has to be drawing near. We would be suprised if that does not occur over the next few months and shocked if it does not happen in calendar year 2014. When it does occur, we expect that Remark shares will get even more attention and have the potential to move even higher than its recent range due to its large stake in Sharecare. Adding fuel to that fire may be a broader movement in the marketplace in terms of valuations for health care related investments, as recent activity suggests that 2014 may see even greater capital flows into the space than the record flows into the space in 2013 -
GrooveVC community members should continue to benefit from operational growth at both Inuvo and Remark and hopefully some increasing investor awareness of the each’s growing business. Neither company has been very promotional thus far in 2014 and we hope to see that change as each has an increasingly good story to tell.
Things have been relatively quiet for Inuvo over the last month or so, with INUV stock settling into a trading range between $1.30 and $1.50. The fourth quarter has traditionally been one where we expect a slowdown in internet traffic – starting with a big boost due to the holiday shopping rush followed by an enormous drop-off in web usage during the last few weeks of each year. Given that Inuvo’s Alot portfolio has always been heavily dependent on traffic trends (both in their ability to produce revenue and in the company’s ability to acquire new users of its search products), we have no reason to expect that trend to be any different this year. I think much of the slowdown in the trading of Inuvo (and drop off in the price) is likely due to investors pricing in such a slowdown and the expected slow to no growth numbers that would come with it. While the company has remained tight-lipped thus far (no early release of top line production), we would not be shocked if Inuvo delivered a little upside surprise for investors in the form of a a stronger bottom line, perhaps even record earnings. The company appears to be shifting more of its efforts to addressing the exploding market for mobile advertising and we believe at some point the rising tide in that space is going to start showing up in Inuvo’s bottom line. We note that the impact of the company’s mobile pursuits has already started to have a big impact on the company in terms of revenue produced and it appears that the company may be ahead of the curve in terms of monetizaton strategies for its mobile properties. If the company’s mobile revenue grows at the same trajectory we witnessed in the second and third quarter, that increase against a backdrop of Q4 being the first full quarter of expense reduction savings since the move to Arkansas in Q1 may allow for a nice little upside surprise for Inuvo shareholders. If that turns out to be the case, we would not be surprised to see the stock trade to a new 52 week high, which would provide 50%+ upside in just a few months for investors buying in at today’s prices.
Remark Media Creates China’s First Boxing Channel – Launches With Distributorship of the Clash in Cotai
Remark Media announced last night that it has been named the official Digital Distributor of the Clash in Cotai boxing event headlined by Manny Pacquiao vs. Brandon Rios. Additionally, Remark Media also today announced that it is creating China’s first Boxing Channel, which will be distributed on PPTV’s platform. The Boxing Channel will feature live boxing events, documentaries, feature films, interviews, analysis and highlights from the boxing world. The Clash in Cotai is the Boxing Channel’s inaugural event. The Boxing Channel, as with PPTV’s other leading sports channels which exclusively distribute the English Premier League and the NFL, will feature a main lobby allowing viewers to browse and view on-demand content, as well as watch live events as they are broadcast. Remark Media is marketing the Boxing Channel and its live events broadcast on the channel via campaigns on Chinese social media Weibo and Weixin, incorporating celebrities, sports influencers, and cultural opinion leaders. The Boxing Channel is online at http://leader.pptv.com/boxing/.
The entire press release can be read by clicking here.
Remark is rapidly morphing into a significant player in several verticals and we believe this deal is an eye-opening example of their potential to find new and exciting ways to create value for shareholders. We should also note that any concerns about near term cash levels have been alleviated, as the 10Q filed by the company late last week included the following:
On November 12, 2013, Digipac, LLC notified the Company that it wished to convert the entire principal amounts of both the November 2012 Note and the April 2013 Note, and all accrued and unpaid interest thereon, into shares of the Company’s common stock, effective as of the same day. This conversion resulted in the issuance of 3,556,672 shares of the Company’s common stock to Digipac, LLC, and the extinguishing of a total of $5.8 million in debt issued by the Company and the approximately $281,236 in accrued and unpaid interest.
On November 14, 2013, the Company’s total cash and cash equivalents balance was approximately $2.7 million. On November 13, 2013, the Company entered into a $2.5 million Term Loan Agreement, at 6.67% annual interest rate for the first year and 8.67% for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer. The Term Loan Agreement is secured pursuant to the Term Loan Agreement detailed below, as amended by Amendment No. 2 to that Term Loan Agreement, dated April 2, 2013. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $3.75 per share, which was the closing price of the Company’s common stock on the date of entrance into the agreement. The balance is due November 2015.
Thus, the two prior convertible financings led by Remark CEO Kai-Shing Tao have now been converted into stock. While this conversion is dilutive to shareholders in that it increases the number of shares outstanding, it has zero impact on the public float and serves to further align shareholders interests with the Remark’s management. The new financing should have the same impact and management projects that this round should cover the company’s cash needs until the beginning of Q3 2014, a time frame which could allow for a liquidity event related to the company’s Sharecare stake. We believe these events will cause many new investors to take a look at the Remark story and considerable value being created for shareholders by Remark Media’s management.
Inuvo announced a very strong Q3 this past Thursday, producing $14.5m in revenue and delivering $680k or .03 per share in earnings per share. Inuvo shares have pulled back about 10% since the report and we believe this is likely due to some investors hoping to see top line revenue of $15m+ in light of comments on the Q2 call that indicated a $5m+ revenue production in July. We believe investors taking profits in Inuvo at these levels may be missing the forest for the trees, as we believe Inuvo management has wisely kept its focus on maintaining profit margins while growing the company’s mobile reach. We think investors would do well to focus on that bottom line and the fact that the company still managed to achieve 10%+ SEQUENTIAL revenue growth while expanding its mobile reach. Additionally, we note that the company’s investments in pursuit of the higher growth opportunity that mobile represents is starting to pay dividends. a fact that we expect to increasingly put the company on new investor’s radar screen.
As of Tuesday’s closing price of $1.54, INUV is essentially trading up about 50% from the price it was trading at ($1.05) when we first introduced Inuvo as one of our focus stocks. While it is always tempting to take profits when you have a stock trading 50% higher than when you acquired it, we think it would be short sighted to sell any Inuvo shares at this point. We believe the stock will hit a new 52 week high before the end of the year and that investors will start to show more interest as the stock trades north of $2. We believe selling Inuvo shares at this point in time is leaving ALOT of money on the table.
Speaking of ALOT of money, Groove community participants should take every opportunity to use the new www.Alot.com website for searching. Remember that Alot.com’s websites have a very high margin Google search feed and all ad revenue that is generated for Inuvo by these search ads is 100% profit for Inuvo (since they did not have to pay to acquire Groovers as they do for most regular consumer users of these sites). Also, with the holiday shopping season almost upon us, do not forget to use the Bargain Match website (www.bargainmatch.com) or download the bargain match browser extension (click here and get $10 just for trying it out!) that allows you to earn cash back on every purchase from nearly every major retailer in the US. The 2-10% back from any purchase that you earn is typically how much that retailer pays to Inuvo also (if you get 2%, then Inuvo earns 2% of what you bought too), so in the aggregate the use of BargainMatch by Groove members and others we recommend it to can make a big difference to Invuo’s bottom line when they report their fourth quarter in a few months. We already see indications that the Partner Network side of the company’s business is gaining very real momentum as the market for mobile ads grows in size and profitability, why not take every opportunity to help the “Owned and Operated” side (Alot.com and BargainMatch.com)grow by using each of the services and showing others how to do it too? Now that the company is solidly profitable, every additional dollar of ad revenue or bargain match shopping revenue generated goes straight to Inuvo’s bottom line as profit and that eventually improves YOUR bottom line as the stock price moves up to reflect the higher earnings. If Inuvo can report even one more penny of profit for the next quarter, the impact on Inuvo’s trading price would be significant. We already believe that Inuvo will be trading over $2 before we get too far into 2014, why not tell friends and associates to buy Inuvo at $1.50 (it is trading at $1.41 this morning – great buying opportunity) and use Alot.com and BargainMatch.com over the next few months to help push Inuvo to record earnings? As the stock value pushes past $2, everyone you recommended it to will be up 33% and have every reason to use the services more, tell others to use it more and the snowball keeps rolling. I have personally told 5 people to buy the stock (it was at $1.150 – $1.20 then) in the last 90 days and those guys are all pretty happy about their new stock and using ALOT.com’s websites on a regular basis. Keep on searching, shopping and telling others how to use Inuvo’s Alot.com and BargainMatch.com and enjoy the ride as other investors start to discover the Inuvo story.
As of our last community update, shares of Inuvo had been stuck in a trading range between $1.10 and $1.20 with very little volume changing hands each day. Since the beginning of October, Inuvo shares have pushed through the upper end of that range on daily volume that is 5x – 10x what was traded in the preceding months and it is readily apparent that Inuvo has garnered the attention of some insitutional, PE or deep pocketed investors who are accumulating shares. The timing (just after the end of Q3) as well as the company’s bullish presentations at multiple investor conferences leads us to believe that the company is performing well and we now think its more likely than not that Q3 numbers will be strong.
We are pleased to see that the company has rolled out the next of its niche vertical owned and operated websites – http://www.finance.alot.com and we are excited that they have chosen the personal finance niche to pursue. The revenue potential for pay per click ads in the insurance, investing and personal finance sector are much larger – often a multiple – of the revenue per click that can be generated in other verticals and we believe that the GrooveVC community can do much to help get the word out and drive incremental traffic to each of these sites. Of course, Inuvo’s margins expand each time a GrooveVC community member uses the search function of http://www.finance.alot.com or http://www.health.alot.com or any of the company’s owned and operated websites.
Remark Media shares have continued to climb higher since our last update, though they have pulled back from the new 52 week highs the shares were hitting towards the end of September. Remarks shares still seem to be most heavily impacted by happenings with Sharecare, in particular those events that make it more likely that Remark may be closer to realizing the value of its near 10% stake. Just over a week ago, it was reported that Sharecare placed the largest funding round in the company’s history, with the Heritage Group investing $15m to bring the company’s total funding to over $91m. The Nashville, TN based Heritage Group is backed by Amedisys, Inc., Cardinal Health, CHE Trinity Health, Community Health Systems, Health Care Service Corporation, Intermountain Healthcare, LifePoint Hospitals, Memorial Hermann Healthcare System, UnityPoint Health, and Vanguard Health Systems. We believe this funding round validates our investment thesis, as Sharecare continues to grow while attracting new industry partners and capital. Accordingly, the value of Remark’s stake continues to increase as investors seeking to get a piece of what might prove to be a hot IPO in a very hot IPO market are increasingly discovering the Remark story.
Remark Media hit a new 52 week high this week and over the last few weeks has been trading in much higher volumes than we have seen in the near past. We believe this is likely the result of several factors.
First, we noted that the trading volume started ticking up following the company’s Q2 report filing with the SEC. The company reported a substantial increase in revenue, likely due to the bump in ad revenue that the company’s IRS.com, Banks.com and FileLater.com get each year during the days leading up to the IRS personal income tax filing deadline on April 15.
Another potential factor we see is that the company is likely benefiting from increased traffic to the recently acquired Bikini.com. We see great potential for ad revenue developing there, particularly if the general public responds to the new content and community on Bikini.com in the same way we have experienced with our own GrooveVC editors, who apparently are spending much more time on their due diligence with the Bikini.com site than they have with previous acquisitions. Seriously though, there are a number of directions we could see the company going with Bikini.com that could create substantial value for shareholders and we think investors are likely starting to take notice.
Another factor that may be driving increased interest in Remark Media shares is the increasing likelihood of the company starting to realize the substantial value represented by its ownership of approximately 10% of Sharecare. As we have discussed previously, we believe that Sharecare will file to go public within the next year and the improving market for Initial Public Offerings make the likelihood of this occurring in the near future even better. Additionally, we note that the company recently hired former Apple communications executive Jen Martin to be Sharecare’s first Public Relations leader, describing her role as “the VP of communications, overseeing PR strategy, media relations, and messaging”. All other things being equal, we think this hire makes it more likely than before that we are moving ever closer to a Sharecare IPO. Of course, this means that Remark Media shareholders are moving ever closer to realizing the value of that Sharecare stake, which in itself should drive Remark shares higher.
Inuvo reported Q2 earnings last week, surprising investors with a 2 cent GAAP profit when many (including us) were expecting a loss. Comments on the previous quarterly conference call had caused most to assume correctly that the top line would decline sequentially, which it did, but the company still showed a 1.9% increase in total revenue over Q2 of 2012. While Inuvo shares initially rallied on the report, the rally was met with fairly size-able selling volume by the back half of Friday’s session and the stock closed down 4.5% at 90 cents. Given the trading that has occurred in Inuvo shares since the report was released before the market opened last Thursday morning, it would appear that investors have chosen to focus on the large decline in revenue for the Applications segment instead of the growth of the Network segment. Inuvo appears to be continuing its Q1 trend of increased mobile activity and management mentioned several new initiatives in their quest to better leverage the company’s Google ties by expanding the ALOT platform to include new verticals like ALOT Health and others. These initiatives have the potential to push the company farther into the black should the growth we saw in the Network division in Q2 accelerate, the Applications segment can stabilize and the company can maintain the lower expense structure they achieved in Q2.