Inuvo’s Q3 Results Blow Away Estimates

November 9, 2012 at 10:53 am Leave a comment

Surprising even the most optimistic among our community of investors, Inuvo reported top line revenue of $15.5m and EBITDA of $1 million for the third quarter, easily besting our estimates for $14.8m in top line revenue and more than doubling our expectation for $400k in Ebitda.  Net revenue from the Software Search segment was $7.9 million, or 50.9% of total revenues. Revenue from the Publisher Network has been dramatically improving since the merger with Vertro, and Q3 revenue improved by $2.2 million to $7.6 million for a 40% improvement over the second quarter of 2012.  The revenue in each segment handily beat our most optimistic projections and management achieved these results on a lower expense base than we expected.

The Inuvo growth machine appears to be hitting on all cylinders.  The Publisher side of the business has recovered much more quickly than anyone anticipated and it appears that the company’s new focus on attracting smaller publishers is paying off.  Management mentioned that their local search offerings (Yellowise and are growing rapidly and that will start to expand into international markets in Q4.

The biggest part of this story is the growth in the ALOT services. Inuvo management seems more bullish on their ability to acquire and monetize US-based users than any time since we started following the ALOT services several years ago and this bodes well for the long-term success of Inuvo.  Management indicated that they have been able to acquire users at lower prices than they would expect based on historical averages and these users are generating more revenue than what would be expected based on historical norms.  I would say that it does not get any better than that, but it actually does.  Last month the company started offering the Bargain Match browser extension as a “tag along” with the ALOT Appbar campaigns amd management indicated that the high utility / value adding / margin expanding Bargain Match app is now adding thousands of users per day.

To get an idea of the potential value of a consumer who has the Bargain Match App installed, consider that ALOT has historically tried to acquire Appbar users at an average cost of around $1.  The average lifetime value of that average user has typically ranged between $1.40 – $1.50, meaning that the search revenue and any commissions from that user clicking the Ebay or Amazon App to do some shopping has resulted in the company earning $1.40 – $1.50.  Or course, that is an average across a base of millions of downloads and the revenue generated by many users will be much, much higher than that while others will have the Appbar and rarely if click on an ad or buy through the Apps. In any case, when Inuvo is able to acquire an Appbar user for a cost in the range of $1 and that user generates more than $1.50 over the time that they keep the Appbar installed, that is the icing on the cake that can materially change this company’s fortunes if it starts to occur with a significant percentage of the user base.

The consumer who has the Bargain Match browser extension installed will earn revenue for Inuvo (and cash for himself) practically any time they buy something online.  Without having to go to any particular website or do anything other than what they would normally do while shopping online, the Bargain Match browser extension prompts the consumer that they can earn cashback and/or use coupons for the shopping site they are visiting – over 2,000 merchants participate including most major retailers (Target, Walmart, Best Buy, Home Depot, Lowes, Sears, Walgreens, Groupon, FTD, Expedia, Apple, Priceline, etc. and the list includes just about every retailer you have ever heard of, click here to see a complete list).  Thus, if the user buys a $50 flower arrangement from FTD, the consumer gets $2 into their cashback account and Inuvo earns $2.  If they book at $100 hotel room on or Priceline, they get $4 – $5 back to their cashback account and Inuvo also earns $4- $5.  If the consumer buys a $50 Groupon, the consumer gets $2 to their cashback account and Inuvo gets $2.  The consumer has a prompt in the corner of his browser showing the buildup of that cashback balance, so he has an incentive to continue to keep the Bargain Match App installed.  Inuvo gets to keep earning their half of the commissions and you can see how quickly those Appbar users we paid $1 to acquire in hopes that we could earn $1.50 can turn into longer term users who earn the company $5, $10 even $20.  This could have a staggering impact on the companys top and bottom line, as this app has the potential to exponentially increase the revenue generated by each consumer that we acquire.

The Bargain Match App has enormous potential.  The fact that Inuvo is now able to include it with the Appbar downloads for thousands of consumers that the $60k per day ad spend is targeted to reach is a really big deal.  Inuvo CEO Peter Corrao said on the call that the majority of the consumers that have been offered the Bargain Match App are choosing to take it and he also indicated that attrition for those who choose the BM App is much lower than the attrition rates for those who take the Appbar alone.  That makes Bargain Match a really, really big deal.  Do not miss the importance of what is happening here.  This only started in October, so Q4 will be the first time that investors will get to see the impact Bargain Match will have on Inuvo’s numbers. In the meantime, Inuvo is still trading in the $1.15 range and investors who understand what is happening here still have an opportunity to buy more shares at a price that will look very cheap in a few months.  Larger investors and even insiders themselves will likely be vying for shares over the next couple of weeks and we will get a much broader audience when the stock moves to a new 52 week high as the momentum players look at what is developing here and start to move in. This will likely occur long before we start to see the any numbers released for Q4, so we encourage Groove participants to take this opportunity to get friends/associates into the stock while it is still cheap.


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