Vertro Q3 Earnings Preview
Since Google kicked off the online advertising sector earnings season with a bang last week, we have received numerous inquiries from GrooveVC members as to our expectations for Vertro’s third quarter. It is tempting to say that Q3 is irrelevant since the GrooveVC movement started with only five weeks left in the quarter and it is unlikely that our involvement will have any material impact on Vertro’s Q3 financials. As stated at the outset, the impact of the Groove VC consumer/investors will be manifested over several months, not days, so we would expect any significant impact to begin with the fourth quarter. However, there are several key items we will be watching for in the Q3 report, some of which may be impacted marginally by the GrooveVC community’s involvement, they are:
1) Revenue – expecting number in the range of $7 million – $7.2 million, which would be a strong double digit sequential growth rate over the Q2 figures. We would love to see Vertro hit the top end of that range, which would be 20% sequential growth and suggest more momentum heading into a fourth quarter where we expect to see this growth rate accelerate to a strong 25-30% Q over Q growth, as several trends align to create a “break out” quarter for Vertro including:
a. a “replenished” toolbar base that looks much more like the active user figures of past periods where Vertro posted higher revenue figures.
b. a recovery in CPC’s and a general feeling that the online advertising space has turned a corner (per Google CEO Eric Schmidt).
c. participation by Groove members – we fully expect to have a significant impact on Vertro’s quarterly numbers going forward and this should be reflected for the first time in the fourth quarter reports. If our active community members’ searching/clicking and revenue generation is on par with our due diligence user figures, we should add nearly $500k to the revenue line for Vertro
d. Improving metrics for Average CPC, lower attrition and a steadily increasing lifetime value (LTV) – each metric impacted by GrooveVC Members who will be more likely to use Alot search more often, search for higher paying terms, shop more sites for any given search and thereby cause incremental improvements in attrition and LTV.
2) Update on China/India testing – we should be close to knowing if the ROI trend remained strong enough for the company to move more aggressively into these markets (they currently have less than 10% of their ad spend and toolbar base in these countries).
3) Cash Management – Vertro management showed good discipline in the most recent quarter to maintain the cash balance while growing the business and we hope to see more of the same, with $4 – $5 million still on the balance sheet.
4) Cost cutting measures – Q3 will be the first quarter Vertro will report where they are out from under the majority of the “expense overhang” from the Miva Media operations. We are hoping to see that management was able to reduce operating expenses (ex advertising spend) to the $3 million range as we move to a sustainable sub – $1 million per month opex structure.
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