GrooveVC Community Update – Travelzoo Reports / Inuvo Conference Call

April 20, 2012 at 7:52 am Leave a comment

Travelzoo reported earnings before the market opened this morning, beating analysts estimates by 2 cents per share and setting records for Q1 non GAAP earnings per share of 42 cents.  TZOO shares fell in trading, which some commentators attributed to top line revenue coming in below analyst’s estimates of $42 million. While the company did in fact miss the target analyst’s had set, the $39.1m achieved was still a Q1 record for the company and the discussion on the conference call was quite positive.  It is increasingly apparent that TZOO management is setting itself apart in the Deals space, pursuing a strategy for measured growth that still allows the company to maintain profitability vs. the two larger players in the space who continue to pursue a “growth at all costs” strategy that led one of them to lose $2 for every $1 in revenue generated.  Such a strategy is not sustainable over the  long term and Travelzoo is positioning itself to accelerate its own growth as the shake out in the deals space removes more and more of the competition and causes even the well funded players to rein in the unsustainable loss making business practices that have made the competitive environment that much more challenging for Travelzoo.  Travelzoo is the industry leader in terms of average revenue per local deal published and the company’s focus on quality deals leaves in well positioned for growth in the “post-growth at any cost period” the space appears to be entering.  Travelzoo management refused to comment on recent reports that the company was in the process of hiring investment bankers to sell the company.

GrooveVC community participants who bought this stock on our initial recommendation last month are still up about 10% despite today’s pullback. Overall, the Q1 report was very good and the conference call was very encouraging in terms of confirming that Travelzoo management seems to be on the right track for growing the business in a way that creates the greatest long term value for shareholders.

Inuvo held a conference call this week to update shareholders on the company’s progress since the closing of the Inuvo/Vertro merger on March 1.  Most of the heavy lifting was done by CEO Peter Corrao, who sounded quite bullish on the company’s prospects.  The combined company’s assets have been organized into three reporting segments –

1) Software Search – the ALOT appbar and home page, which should comprise approximately 45% of the combined company’s revenue.  From all indications on the call, this business is growing rapidly and management expects to see very strong Q over Q growth in live users.

2) Publisher Network – has two pieces that together generate about 40% of the combined company’s revenue.  The first piece is the approximately 1700 websites who get Yahoo’s PPC search results that are provided through the Inuvo platform. The second piece is the company owned sites like Yellowise that get the same PPC search feed.

3) Partner Programs – the smallest of the three currently expected to generate only about 15% of revenue, but expected to grow rapidly from its very small current revenue base.  This segment includes the rapidly growing display advertising business that not exist one year ago, but now generates close to $400k per month in revenue; the soon to be launched Kowabunga Rural/Suburban daily deals service and the Bargain Match shopping App. Inuvo management’s excitement about the growth of the display ad business was tangible and their mention of March’s $50k revenue month for the Bargain Match App that was marketed alongside the Appbar (meaning no additional ad spend for Bargain Match to reach that level) suggests to us that the Bargain Match App could develop into a major revenue generator for the company.  It will be interesting to see what this team can do to increase distribution of that App between now and year end and even more interesting to see how much revenue it could generate during the holiday shopping season.  Of course, we will be watching with great interest as the company launches its Kowabunga Daily Deals program to see what the revenue potential will be.

Key takeaways from the call included the company’s ALOT user base had rebounded back to 7.3m live users as of the call date, the company is seeing very positive trends for the ALOT business generally as the daily ALOT product downloads had increased to what is now 100,000 per day as April downloads were tracking towards 3 million. the company went live this week with a new “local.alot.com” local search service designed to leverage Inuvo’s Yellowise directory database with ALOT’s Google PPC advertising contract and Inuvo management believes that the emerging mobile market will be a big part of the company’s future and it is structuring further development of the App centric aspects of its business accordingly.

We remain very bullish on Inuvo’s prospects and believe that Groove community participants would do well to add shares at these levels and continue to bring friends and associates into the fold.  The period between now and August (when the first quarterly report for the combined companies will be released) could provide a window of opportunity that will not be seen again when the Inuvo story begins to be better understood by investors following that report of that first full quarter of the Inuvo/Vertro combination.  The current market cap of Inuvo still falls well below the range of valuations we saw for either the standalone Vertro or Inuvo over the 18 months prior to the merger announcement and we believe that there is over 100% upside possible for Inuvo shares before the end of this calendar year.

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Groove VC Community Update – Travelzoo and Inuvo Inuvo Update – Buying the Sell-Off

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