Vertro Presentation at the AGC Growth Conference – Key Points
Vertro CEO Peter Corrao’s presentation last week at the AGC conference revealed a number of items that seem to have been overlooked by investors. Because Vertro’s stock still trades in penny stock land and has no significant exposure to retail analysts, the company’s stock remains well off the beaten path and well below most investor’s radar screens. As such, items of significance like the nuggets dropped during the AGC conference call are often overlooked. We want to highlight these items for the GrooveVC investing community because they reinforce our belief that Vertro the company is doing much better than Vertro the stock and we believe that corporate events occuring over the next 90 days will do much to bring the Vertro story to the attention of investors. The key takeaways were:
1) First mention of impact of “organic/viral” marketing.
2) Range of sequential revenue growth from Q3 to Q4 raised to “high single digits to low double digits” vs. previously just “high single digits”.
3) Multiple clues that allow us to infer that Q1 revenue tracking well vs. rumors of a revenue shortfall including:
– Breakdown of 12/31/2009 toolbars by region.
– VTRO management’s expectation that VTRO will achieve EBITDA profitability in EACH QUARTER of 2010 vs. EBITDA profitability for the full year 2010.
– VTRO management’s expectation that VTRO will achieve high single digit to low double digit sequential growth in search queries from Q4 to Q1 2010.
We already noted on the monthly update that Mr. Corrao’s presentation included the first official mention of the growing impact of “organic/viral” toolbar/home page users and their characteristic stickiness and tendency to use Alot search more than a user from their paid marketing channels. Very interesting – a group of users who sign up for the Alot toolbar and/or home page that requires no marketing spend by Vertro, they continue as active users longer than the user acquired through VTRO’s traditional marketing channels and they use the Alot search functionality more often than that typical user acquired through normal marketing channels. Does this sound familiar to anyone out there in the GrooveVC community?
The second important point Mr. Corrao mentioned was that they expect sequential growth from Q3 to Q4 to be in the “high single digits to low double digits.” This extends the range of “high single digits” previously given and leads us to believe that we should see (at a minimum) 8% or better revenue growth from Q3 to Q4.
The third key takeaway from the conference was a series of comments/disclosures that lead us to believe that Q1 revenue is tracking well vs. historical trends and in direct contradiction of rumors of a Q1 revenue shortfall that seems to have contributed to a recent decline in Vertro’s stock price. The first of these was the disclosure of the breakdown of the toolbar numbers by region. We know that historically, “Region One” toolbar/home page users have generated 10x the revenue that we should expect from a toolbar/home page user in the non Region one or “rest of world” category.The presentation slide showing the year end toolbar numbers revealed that 3.3 million of the 4 million “active” toolbars were Region One users.. Given that we started Q4 2009 with 3.3 million Region one users and we know that the seasonal factors previously discussed causes the year end user figures to be skewed downward, it gives us further reason to believe that VTRO’s Q1 has the potential to deliver revenue in line with or better than Q4. This is particularly true when the slide also indicates that the Region One toolbar figures were already up over 20% (to 4 million) by Feb. 7, 2010.
Mr. Corrao mentioned that they are now expecting high single digit to low double digit growth in search queries for Q1 over Q4. This is a key detail because historical trends suggest a fairly consistent correlation between search queries and revenue generated by those queries and also because The Alot business has historically shown a slight decrease in revenue sequentially from Q4 to Q1. While we believe that Mr. Corrao likely wanted to avoid setting a precedent of making revenue projections this far ahead of the quarter’s end, we also believe that his mention of a likely range of sequential growth in search queries was intended to let us know that 1) revenue has not fallen off a cliff since Q4 and is most likely tracking for sequential gains and 2) this information should be considered in the context of the prior years’ trends (2008 & 2009) where Q1 revenue falls below the revenue earned during the seasonally strong Q4 period that is positively impacted by the heavy shopping / searching of consumers that usually occurs during the lead up to Christmas. The combination of the big consumer push in the weeks leading up to Christmas, followed by the veritable drought in new toolbar acquisitions that occurs during the weeks just before and after the holiday season usually results in Q1 results falling behind those of the previous quarter. If VTRO has figured out how to deliver sequential revenue growth in Q1 2010 over Q4 2009, this would suggest to us a stronger underlying growth trend altogether and give us more reason to believe that VTRO can deliver high single digit to low double digit sequential growth consistently going forward.
In summary, Mr. Corrao’s presentation at the AGC conference was quite bullish for Vertro shareholders. While this seems to have had little to no impact on Vertro’s trading price, we believe recognition that Vertro’s model allows for sustainable revenue growth with expanding margins will be coming in the near future and we expect that potential to be reflected in the stock price over the next few months.
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