Archive for August, 2010
In a long anticipated move, Vertro implemented a 1 for 5 stock split yesterday. We are very pleased that the BOD chose to do the full 1 for 5 vs. the other options because the higher stock price allows for a broader universe of potential investors and it provides a greater cushion to the Nasdaq’s minimum bid price of $1. While we do not believe there is any fundamental reason that the Nasdaq minimum bid requirement will be an issue again in the future, there are instances where short sellers target small companies with low trading volumes to manipulate the share price for a quick buck, so the BOD decision to go the 1 for 5 route makes the most sense.
The timing of this reverse split from an operational standpoint could not be better. As a stock trading higher than $1, Vertro will have the potential to show on many, many more investor radar screens spanning a much broader universe including many research services and investor forums that automatically exclude any stock trading below $1. For some brokerage firms, a stock trading above $1 becomes marginable and there are many institutions whose charters them to establish a stake in a $2 stock, but not one that trades below $1. Given the stock’s post split trading price north of $2 and the potential for gains as the results for the next few months come in, Vertro is a stock that could be trading north of $5 over the next few months, which would make the stock marginable at nearly all brokerage firms and otherwise expand the universe of potential investors to an even greater degree.
The Quarter-to-date metrics released by Vertro management yesterday are extremely bullish, with a trajectory that suggests the potential for a near 20% sequential increase in total search queries. Region one figures are the most important to note in that they traditionally monetize at about 10x the rate of the “rest of world” markets and the released metrics suggest a strong double digit sequential revenue increase is possible. In the past, search query growth has been a fairly good indicator of revenue growth, so the metrics essentially allow us to see that management remains on track to achieve the double digit sequential revenue growth they have projected.
The next few weeks’ trading in Vertro could be interesting. We will have the “D” attached to our VTRO symbol to indicate to investors that Vertro has just implemented a reverse split. For many stocks we have followed in the past, this type of situation has attracted short sellers. This may not occur with Vertro, given the company’s strong operating results, but it could given that such “investors” often look for very short term trading “opportunities” regardless of the underlying fundamentals. In any case, the long term outlook for Vertro has never been brighter and investors who have purchased Vertro shares up until now should enjoy major stock price appreciation over the next few months.
When we first started telling the Vertro story, we had an unprofitable company and a penny stock to go with this great little toolbar service. Since then, the apps available for toolbar and homepage users have grown substantially, making the ALOT value proposition that much greater. Even more importantly, we now have a company that will be EBITDA profitable for 4 consecutive quarters (when Q3 is reported) and a stock trading north of $2, making it much easier to sell the concept of “buy the stock, use the appbar/homepage”. Now is a great time to redouble your efforts in telling the Vertro story to friends/business associates and get ready to enjoy the ride as Vertro results continue to grow on top of the incremental revenue generated by the searching/shopping of our community participants.
Vertro released Q2 numbers last week that evidenced a well managed growth trajectory in spite of the constraints on use of their cash resources as a result of the Nasdaq minimum equity requirement that had to be met by June 14. During a quarter in which management continued to achieve greater efficiencies in ad buying and stronger consumer use patterns, they were unable to fully capitalize with the necessary continuity of advertising spend they would choose if they did not have to hoard cash leading up to the June 14th Nasdaq deadline. With the passing of the deadline and the achievement of compliance, the company was then able to resume operating in a fashion where the goal returns to profitable long term growth instead of near term cash management. We believe this is the last such hurdle that could have a material impact on Vertro’s operations and expect to see the final hurdle (Nasdaq minimum bid rule) conquered over the next few weeks.
There were two very important takeaways from the post report conference call –
1) the company gave us an update on quarter to date results and raised Q3 revenue guidance from “high single digits to low double digit sequential growth” to “double digit sequential growth”. The number of toolbar users, home page unique users and searches all showed very strong gains in July over June and management indicated that the numbers through Mid-August suggest that trend has continued.
2) management announced the testing of a new “app bar” that has a few new twists that has shown a higher degree of user engagement than what we currently see with the existing ALOT toolbars.
In addition to these two items, we should note that one who listened to the conference call would be hard pressed to come away feeling anything but very optimistic about Vertro and the prospects for the next few quarters. We believe that the reverse split that will be implemented over the next few weeks will ultimately be very positive for Vertro shareholders as investors get an opportunity to consider the potential of the Vertro growth story without vestiges of the Miva albatross, the dark cloud of Nasdaq delisting or penny stock status. Keep searching, shopping and sharing the Vertro story.