GrooveVC Update – Vertro Posts Strong Q1, Stock Cheap
Vertro released Q1 results that were quite impressive last week. Following are the key takeaways from the report and the conference call –
1) Management reiterated expectation for EBITDA profits in each Q of 2010.
2) Management reiterated expectation for high single digit to low double digit revenue growth per Q in 2010.
3) Company achieved higher than expected revenue (small gain over Q4 when usually expect lower than Q4)
4) Achieved #3 with lower than expected ad spend for Q1 due to media buying efficiencies that appear to be sustainable
5) Vertro achieving success in new international markets – some with higher ROI than tier one markets
6) Verto accelerating move into new microsegments – now adding about 50 new affinities per quarter
7) Vertro financing arrangement with AGS Capital well crafted for the flexibility needed to meet Nasdaq requirements with the smallest dilution possible for existing shareholders. In our discussions with management about this arrangement they made it very clear that the stock sale was only for the purpose of meeting the minimum shareholder equity requirements of the Nasdaq, that the measure used is impacted by several inter-company notes related to foreign entities that still remain (but will be closed this calendar year) from the old Miva European Ops, they do not want to sell stock at these levels and they will do the smallest amount necessary to meet the June 14 Nasdaq requirement.
Vertro’s current cash adjusted market cap is approximately $8.5 million based on yesterday’s closing price of 42 cents. We believe the recent sell off is wholly due to the difficult overall market conditions combined with a misunderstanding of Vertro’s Reserve Equity Financing Agreement. We believe the current weakness and any further selling leading up to the June 14 Nasdaq deadline for compliance with its minimum Stockholder’s Equity requirement represents a major buying opportunity. Management has already indicated that they expect to be EBITDA profitable in each quarter for the remainder of this year and that they will add cash to the balance sheet each quarter. They expect to achieve high single digit or low double digit revenue growth each quarter through the end of 2010. Our models suggest that Vertro could deliver EBITDA in the $8 – $9 million range over the next 12 months, meaning that investors buying at today’s prices could be paying only 1x the next 12 months EBITDA for a company that our most conservative estimates suggest should grow the top/bottom line in the 25% range while reducing operating expenses.
GrooveVC community members should continue to use their Alot toolbar / Home Page to do all their searching/shopping and show friends and business associates how to do the same. Do not miss this opportunity to introduce the Vertro/ALOT story to others while the stock is trading this low. It is highly unlikely that investors will see an opportunity to buy Vertro at these levels again. Buyers in the sub 50 cent range should be very well rewarded over the next few months and we believe they will see returns of over 100% before the end of this year.
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