Update on VTRO and ATRN
All has been quiet with our two portfolio companies since our last update. Neither has had much in the way of news, save Vertro’s announcement of its participation in an investors conference in early January. I think it would be fair to say that many in our ranks have been a little disappointed that we have not seen more public relations activity by Vertro, particularly in light of the momentum our community has worked to foster over the last few months and what seems like an extraordinary opportunity with the new App Marketplace. On a more encouraging note, the deal announced last week by PE firm AFCV Holdings to take down Answers.com could bring more positive attention to the several small companies remaining that generate significant revenue through the Google Network, a quality that should make them increasingly attractive acquisition targets. Several aggressive acquirors including AOL, INSP and IACI reportedly have higher revenue share within the Google network and need to find ways to grow their Google search revenue, which should make companies like VTRO and MAIL with their large and rapidly growing search revenue generating operations very attractive. On another positive note, an article in Seeking Alpha mentioned Vertro as one of several “nano cap” stocks that deserved a second look based on a screen for a number of key indicators.
As for Atrinsic, it has been even quieter there. We were able to participate in a conference call with ATRN management a few weeks ago and it sounds like everything remains on track with the focus on Kazaa, except that there have been some delays that we suspect are likely related to negotiations with the record labels. As anyone who follows this space knows, those negotiations often take longer than one might expect (ask Spotify fanboys). We now believe that many of the happenings expected to occur in late Q4 / early Q1 have been pushed forward to late Q1 / early Q2.
We have received numerous queries from Groove members asking whether they should sell some or all of their Vertro shares given that they have such large gains and it seems to have settled into a trading range. Given that many of our members starting buying the stock at split adjusted prices in the $1.10 – $1.25 range and may be sitting on a gain of 400%+ at today’s prices, we think it may make sense for some to consider taking some or even all of their initial investment off the table. With the stock trading in the $5.40 range, most members of the Groove could take their initial investment off the table and still have more than half their position remaining to ride the Vertro train the rest of the way with “house money”. This makes the risk to your original investment nil, but still allows you to enjoy the upside of the Vertro growth story and/or any buyout scenario. Our advice here is simply this – we think the model is valid, its working and that the company’s stock will eventually move substantially higher than it is now if you hold it long term. However, we also know that stocks capable of moving up 400 – 600% in one year’s time can also make substantial moves to the downside should the company hit some bump in the road. While we are not aware of any specific information that would lead us to believe that the company has or is about to experience such a bump, prudent investors need to assess their tolerance for risk and act accordingly. If the stock trading down 30 – 40% over a several month period would be difficult to stomach, then maybe you should consider taking some profits off the table here. In any case, our specialty is finding undervalued, under appreciated small cap situations that have growth potential that could be materially impacted by the involvement of a community of “engaged” consumer/investors organized to be a catalyst by aggregating their ability to invest, consume and promote, rather than determining whether investors should exit with a 400% return or wait for 1000%. As such, our commentary going forward will continue to be focused on what and when to buy along with our thoughts on focus company and industry happenings.
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