Inuvo Update

July 18, 2012 at 9:27 am Leave a comment

A quick update on Inuvo so that Groove members can take advantage of what we believe is a great opportunity to buy shares at what will prove to be a very low valuation.  Inuvo stock has traded back to its 52 week lows over the last few sessions with no company specific or industry news that would suggest the company’s value should be lower.  In fact, Inuvo management has issued two press releases over the last week that would suggest quite the opposite, that Inuvo’s fortunes are improving as two key components of the company’s growth strategy – the Alot display ad business and the Alot Appbar – appear to show continued strength:

http://finance.yahoo.com/news/inuvo-launches-additional-display-ad-123000876.html

http://finance.yahoo.com/news/inuvo-announces-18-live-user-171200013.html

While we believe any indication that the number of US users of the Alot Appbar is growing represents a positive development, we were most excited about the potential implied in the PR related to the display ad business.  The impressive growth of the display ad business was (in our opinion) one of the most bullish aspects of the last quarterly conference call.  For the company to have discovered a “tweak” to a their display offering (ie making it two ad units instead of a single one) that could increase the earnings associated with that ad space by 26% is a very big deal. We are not implying here that the company will be able to consistently deliver an increase of 26% of the strong results they were achieving with the single ad unit, but instead pointing out that even a 10% improvement over the long term would have enormous implications for the overall business.  Investors should understand that the economics of this business are based on the company’s ability to pay “x” to acquire a new user that will on average deliver “Y” in ad revenue.  The additional cost of serving two ad units instead of one on the Alot Home page is essentially zero, so any growth in what is being generated by that space not only has the potential to go straight to the bottom line, it has the potential to allow the company to grow the user base more aggressively.

We have discussed in this forum previously our belief that Inuvo is well below most investor’s radar screens right now, it will likely remain below investor’s radar until sometime after the combined Inuvo/Vertro issues its first report and that there will likely be significant volatility in the trading of the shares until that occurs, which can lead to exactly what we have seen the last few weeks – the stock drifting slowly lower. While it is always difficult to predict where a stock will trade over the short term, we believe the current price range reflects a great opportunity to buy INUVO shares and bring others into the fold. We continue to believe that the Inuvo story will increasingly attract other investors as the strength and scale of the combined Inuvo/Vertro becomes clearer beginning with the reported results for the second quarter.

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