Vertro and Inuvo to Tie the Knot
Vertro and Inuvo management announced a merger this morning, with Vertro shareholders receiving 1.54 shares of Inuvo for each Vertro share owned, representing a 68% premium to Vertro’s closing price on Friday afternoon. We could not be more pleased with this marriage, combining the strengths of the Inuvo Platform (data analytics, affiliate distribution, high utility consumer facing apps, long standing Yahoo Search relationship) with the strengths of Vertro (installed user appbar user base of 8 million+, highly evolved search marketing expertise, Google Network advertising contract) while offering the potential for the elimination of between $2 and $2.5 million in redundant expenses. Given that each has been operating at breakeven or slightly profitable for the twelve months prior to the most recently reported quarter, it seems that the elimination of redundant expenses alone would springboard the combined entity to profitability. However, we believe that the real value that will be created for shareholders lies in the synergies between the operations of the two. Consider the following –
1) Vertro’s Alot Appbar marketing machine spends approximately $2 million per month marketing the Appbar/Homepage, on average spending $1 to acquire each consumer who will use the appbar’s search functionality or interact with the appbar in a revenue producing way such that he will on average generate about $1.35 – $1.40 in revenue. What happens when they include the Bargain Match reward program automatically with each appbar download? Bargain Match simply causes each user to get cash back for their online purchases at most of the major retailers in the US with little to no effort on their part and it also causes Vertro/Inuvo to earn some small percentage of each purchase. While it may seem small as a percentage of each customer’s purchases, the potential to earn even an extra dollar or two from each appbar user would cause an exponential improvement in the margins of this business and have a dramatic impact on the top and bottom line.
2) The potential to integrate a local daily deals offering into the appbar marketing process and/or offer a Kowabunga Daily Deals app to the millions of existing appbar users will result in some percentage of the user base interacting with the Appbar on a daily basis to see what deals are offered. Vertro has long offered Ebay’s daily bargains app that offers national specials and that has been one of Vertro’s largest sources of non search revenue. What happens when the deals are more geographically targeted, offer huge discounts on products/services and the VTRO/INUV earns 10 – 40% on each deal instead of the 4 or 5% they might earn on an Ebay deal? It now becomes possible that some portion of the customer base that we pay $1 to acquire will produce revenue of $3 to $50 on a daily deal purchase,that customer might do it multiple times, they might use the social media tools integrated into the service to pass it along to friends and so on. Thus, the integration of Inuvo’s consumer offerings has the potential to substantially increase the revenue generated by and the lifetime value of each appbar user.
3) The potential to monetize Inuvo search with Google PPC ads – while it is by no means a given that all of Inuvo’s search revenue driven properties would convert their Yahoo/Bing ad feed to a Google feed and we can see value in maintaining the relationship with both Yahoo and Google, we do believe that there will be an opportunity for Inuvo/VTRO to use the consistently higher paying Google ads for some portion of its search traffic and we would expect to see a significant increase in the revenue generated for those properties. Inuvo actually generated slightly more search revenue than Vertro did over the last 12 months, so the introduction of a Google Ad feed could have an immediate and significant impact on the company’s top and bottom line. Further, if the company were able to offer an ad feed to third parties that incorporated the Google Ad feed, they would not only earn more per click but also would be more likely to attract more higher traffic third party websites to join its search network.
4) Inuvo’s affiliate platform can be used to market Vertro Appbars – Inuvo has thousands of websites that successfully market many different web products and services on a “cost per action” basis. Inuvo’s access to the data related to who, what and why things do well through this channel should prove quite valuable for marketing ALOT’s appbar and homepage products.
In addition to these product line specific opportunities, we note that the company will enjoy many new benefits associated with its significantly larger scale – with over $70m in trailing twelve month search revenue, a stronger balance sheet and the likelihood of a substantially larger line of credit all lead us to believe that the combined entity will have greater opportunity to grow the company organically and through acquisitions. These are just a few of the major advantages we see accruing to shareholders if the Inuvo/Vertro merger is consummated. We are extremely bullish about the prospects for such a combination and look forward to the conference call after the market closes today for further enlightenment.
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