GrooveVC Community Update – Vertro Announces 1 for 5 Reverse Stock Split and QTD Metrics
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.
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