Groove VC Update 4/30/2010
Per Vertro’s recent press release detailing non-financial metrics for ALOT – Sequential Growth in Total Search Queries was 6.5% and the core “Region One” that monetizes at a much higher rate than the “rest of world” category showed an increase of approximately 8.5% in search queries over Q4. This growth was stronger than we anticipated and suggests improving retention rates. Q1 has traditionally fallen below Q4 levels due to the seasonal factors discussed here in the last update. We were hoping to show year over year improvement to the tune of a Q1 that was flat with Q4. Past results suggest a very strong correlation between the number of search queries and revenue generated, so we now expect that we will see some small sequential growth in revenue for Q1 over Q4.
The growth in the number of ALOT Homepage users remained strong with strong double digit sequential increases, the most important of which was a 14%+ increase in region one HomePage users. As we have previously discussed in this forum, ALOT HomePage users on average search more, consume more ads and use the service longer than the average toolbar user.
The 8-k related to the Miva legacy leases in Fort Myers were good news – the majority of the empty office space that remains part of the Vertro expense structure has now been leased removing that obligation from Vertro’s expense structure going forward. This expense savings is in addition to the more substantial improvements that will carve over $1 million out of Vertro’s expense structure starting in June.
The very strong metrics reported for Q1 and the quarter end toolbar and homepage numbers suggest that the growth of Vertro’s business could be accelerating. We last posted that investors could buy into the Vertro story at 1x forward EBITDA based on expected results for Q2 2010 through Q1 2011. It appears that we could now back that up a quarter and that Vertro may be able to achieve that level of EBITDA for twelve months of calendar year 2010. Of course, the stock price has increased about 30% since that report was posted. We still feel that the Vertro story is largely unknown among retail investors and expect that to change over the course of the next couple of quarters. As this occurs, and we see Vertro’s stock price gravitate toward a more traditional high growth stock multiple, investors at current levels should enjoy strong price appreciation from current levels.
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