Archive for December, 2009
We have received numerous questions from GrooveVC community participants regarding the recent 8-k’s filed by Vertro. While some of the news may be perceived as good and some as bad, we believe the common theme wound throughout these filings is that management is optimistic about the company’s prospects and that they expect to see Vertro’s stock move higher. Below we have shared our thoughts on each filing:
1) 8-K – December 21, 2009 – detailing the Nasdaq notice received due to the company’s failure to meet the Minimum Value of Publicly Held Shares requirement. This Nasdaq rule requires listed companies’ free trading (not owned by insiders or those owning more than 10% of the company’s stock) shares to have a market value in excess of $15 million. Given that the company’s current market cap is currently right at $15 million (42 cents per share at yesterday’s close) and approximately 15 – 25% of the company’s shares are held by insiders or larger shareholders that are in the 10% range, it seems that our market cap needs to climb to the $18 – $20 million range for at least 10 trading days. We believe that Vertro management is confident that either the stock will trade to the necessary range before the Nasdaq process is complete or that the company will be able to transition from the Nasdaq Global Market to the Nasdaq Capital Market. VTRO shareholders would see little to no change if the stock were traded on the Nasdaq Capital Market instead of the Global market and the MVPHS threshhold requirement for continued listing is only $1 million.
In the same 8-k, the Vertro management announced that they do not intend to implement a 1 for 10 reverse split. We view this as quite bullish, perhaps a even the “signaling effect” from Vertro management that they believe that the stock price will maintain a price range that would make a one for 10 reverse split unnecessary. While they did allude to an “alternative” stock split, it is most likely that they will seek approval from shareholders to give the Board authority to do a smaller split (ie 1 for 5) with a sliding scale that can be adjusted by the board depending on the stock price at the time it is implemented. This again suggests that management sees Vertro stock moving higher in the weeks and months ahead.
2) PR – December 22, 2009 – Announcement of Summary Judgement Ruling in Securities Class Action Lawsuit – We believe this is a very big deal in that it will likely take a potential seven figure judgement/settlement off the table. This ruling that is dismissive of the merits of the Plantiff’s claim will likely make Plaintiff’s counsel (who probably has mid six figures in expenses already tied up in this case) more aggressive in seeking some settlement that will allow them to recover some of their sunk costs. Given that the Plaintiffs must now look only to procedural issues in their appeal it is possible that Vertro may be able to put this issue to rest soon without significant additional expense.
3) 8-K December 23, 2009 – Vertro Obtains Line of Credit from Bridge Bank – in the midst of a credit market that has essentially dried up for all but the bluest of the blue chips, Vertro was able to secure a line of credit of up to $5 million. This is no small feat and we believe this may be the first third party affirmation of Vertro’s business model. While the predecessor company was able to obtain a line of credit through Bridge Bank, it was done only a few months before the final sale of the Miva operations was completed and it certainly contemplated the near term infusion of cash ($11.2 million) that would result from the sale of the Miva Media operations. We do not believe that Bridge Bank would extend a $5 million line of credit in the current environment to a company if they thought it would not be able to consistently generate positive cash flow.
4) 8-K – December 24, 2009 – Amendment to Vertro’s office lease in Fort Myers, Florida. Prior to this amendment, Vertro was “on the hook” as the lessee of nearly 20,000 feet of office space under a long term lease executed during the Miva days. Though management had procured a sublessee, the short term nature of the sublease and the current malaise in the real estate market left many investors concerned that Vertro might soon get stuck paying the nearly $400,000 per year cost of this lease. This amendment removes Vertro as a party to the lease altogether, thus removing any potential for financial impact related to that office space.
Back in September when our online message board forum was only a few days old, a member of our GrooveVC community shared an idea that deserves a little more attention today, given that we are in the middle of the Christmas shopping season and Vertro’s shares remain in a trading range that is only about 10 – 15% above the price when the idea was posted. Groove participants should give strong consideration to the idea presented here – why not buy a few hundred or a few thousand shares for grandkids, neices and nephews as a Christmas gift? The benefits to the giver and the recipient could be quite substantial. Here is an excerpt with a link to the full discussion at the bottom:
“Buy shares in custodial accounts for grandchildren, and provide the parents with the information on how they can grow their childrens accounts by using ALOT. This will encourage them to use the site, invest themselves, and spread the word.”
“Not only will you be a hero for being so generous, you can help them learn to follow the stock market and give them a number of very practical lessons in personal finance along the way. When you show their parents how to install the toolbar and/or use the home page to do all of their searching and shopping online, they will probably add ALOT more to Vertro’s bottom line than $350 over the course of the next year. In fact, the Groove’s research suggests that number would likely be between $47 per week and $78 per week. At that rate, that would add close to $2500 per user even at the low end. Why not spend $350 if you can make $2500+ for the company you have invested in, plus be a hero (and a financial whiz) to family members when you give them stock that will be worth several thousand dollars within a year and help them to learn practical personal finance lessons along the way?”
Full posting/discussion and reader comments can be found in the Groove VC Message Board Forum by clicking below:
Vertro management issued a press release yesterday indicating that they had achieved record revenue on Cyber Monday, November 30, topping the $100,000 single day revenue mark for the first time in Vertro’s short history. Vertro’s operations scored $106,000 in revenue, a figure they indicated to be 9% higher than the previous three Mondays. These numbers give us ALOT of food for thought:
1) We know that Monday’s are typically the best day of the week for search traffic and ecommerce in general, so we can assume that the +/- $97,250 that they have achieved on the previous three Monday’s is somewhat higher than could be expected for an average day in any given week. Playing with the numbers a little here – suppose that the fourth quarter’s average daily revenue comes in at approximately 5% below what they did on those “non Cyber Monday” Mondays? That would mean that Vertro might achieve revenue of $97,250 x 95% = $92,388 per day. Multiply that by the number of days in the quarter (92) and you get $8,499,696.
The lone analyst covering Vertro has predicted that Vertro will achieve EBITDA profitability in Q4 on $8.3 million in revenue. Might we be on the crest of an upside revenue and earnings surprise?
2) Is Vertro starting to see an impact from the GrooveVC users who were previously using Yahoo, MSN or Google, but now use ALOT for all of their searching and shopping? In our monthly update, we take the number of active community participants and multiply by the average weekly revenue generated by “control group #2” in the experiment we undertook during the due diligence phase to give readers an idea of the potential impact that the Groove could have on Vertro’s results. While we have no way of tracking the actualy usage by Groove participants, we have always believed that the increased usage from our members would make an significant impact on the fourth quarter results and it is interesting that management is starting to release indicators that lead us to believe that revenue might be trending better than they initially expected. We continue to believe that Vertro will beat the $8.3 Million revenue estimate due to the increased revenue generated by the searching/shopping of the GrooveVC communitty.
3) One of our members had posted an idea in our online forums that we shared with the blogosphere on November 18. The gist of the posting was that one could use ALOT to search/shop all of his/her consumer financial products to get the best price and then invest the savings in Vertro stock. Another member of our community who read that post shared an interesting thought with me after reading Vertro’s Press Release yesterday. What if the entire Groove community decided to shop those products on the same day? With all the insurance, banking, mortgage and brokerage companies paying $15 – $30 per visitor to get their links pushed to the top of the search results, just one person shopping one aspect (i.e. car insurance, life insurance, homeowners insurance, brokerage accounts, credit cards, online banking, home equity line of credit, consolidation loan rates, etc.) of their consumer financials would likely generate over $100 in search revenue for Vertro if they comparison shopped the top 10 – 15 listings before making a purchase. If 900 or so Groove members did just that or some even shopped two or three components, the Groove participants alone could drive more than $100,000 in revenue for Vertro in a single day regardless of which merchant they ultimately chose to do business with. Add that to the revenue generated by the other 5 million plus users that day and its easy to see how quickly Vertro’s revenue could ramp materially higher in a very short time frame.
Keep searching/shopping ALOT and keep showing your friends, associates and colleagues how to do it. They can still buy in at these levels and enjoy exponential upside when everyone else figures out what is happening here.
A quick note to update you on our progress and a few things community participants might find to be of interest.
As of November 30, 2009, GrooveVC Community participants have now increased to a level (885) that our research suggests could be adding over $7,800 per day to Vertro’s bottom line during the month of December if the weekly click revenue averages are in line with what we experienced with control group #2 in the experiment we undertook during the due diligence process. If the numbers above prove out, the searching/shopping of 885 Groove participants would be adding more than $550,000 to VTRO’s bottom line during any given quarter.
The reported share holdings of community members is now over 1.6 million shares, which is slightly more than 4.5% of Vertro’s total outstanding shares.
We have now been active for a little over three months and our ranks and percentage ownership in Vertro continue to grow substantially each month. We have added over 160 new community participants over the past 30 days and we remain on track to achieve our original goal of having 1,000 active community participants by the end of 2009. As discussed in our original due diligence report on Vertro, if we can get 1,000 investors/consumers to use one of the Alot services (toolbar, home page or desktop) to search/shop all of their purchases online, we could (based on the numbers achieved in our experiment) add several million dollars to Vertro’s bottom line over the course of calendar year 2010.
Last month’s quarterly conference call should be quite gratifying for all current members of Vertro as Management reiterated their expectation for achieving EBITDA profitability in Q4, segregated reporting of tool bars and revenue by region and generally provided a level of transparency not provided prior to our requests for such. Further, all GrooveVC participants should be pleased to note that our word of mouth marketing efforts are working quite well and we fully expect to achieve our goal of having a group of like minded participants 1,000 members strong to help drive further revenue gains for Vertro and to continue spreading the word about ALOT. Our efforts are really just starting to make a substantive impact on Vertro to a degree that we should have a material impact on Vertro’s numbers when the report for Q4 is released. We believe the Groove’s impact will be well into the six figure range and should allow Vertro to exceed analyst’s revenue expectations of $8.3 million for the quarter.
Keep searching/shopping and spreading the word!