Archive for January, 2013
Groove members who have followed and/or purchased shares of the “focus stocks” we recommend may own shares of Travelzoo. Those who did not sell in the 20% run up (we got notes from several indicating that you sold then and have been trading those swings ever since) that occurred in the weeks following our addition of it as a focus stock may still own shares with a basis in the range of where it closed Friday ($23). Today we are going to to something we have not done here at the Groove yet. We are removing Travelzoo as a focus stock because we don’t think our involvement can make a difference. We still believe in the potential for the stock to achieve strong gains for shareholders. In fact, we think the earnings report last week was proof that the company is moving in the right direction and that investors are beginning to see the potential here. We still believe that Travelzoo will move substantially higher from today’s levels – 30% or more at some point in 2013 when their reported numbers start to reflect the impact of the recently acquired hotel/lodging booking engine. The company’s move to focus resources on building out that aspect of the business has taken longer than we had expected, but we still believe that it will transform Travelzoo and that the stock will move substantially higher when the street sees evidence of this occurring.
Regardless, we believe that we should remove Travelzoo from our focus list and we are doing it for one reason. Travelzoo is simply too big for our group’s involvement to “move the needle”. We believe this to be true even if all Groove participants commit to using the services religiously. We can get all our friends and associates to sign up for the email deals and we can book our travel through them. But the email deals already have over 26 million subs and how many times are we going to book a vacation this year? Of course, every little bit helps, but we believe that our resources may be better focused on smaller companies whose services can be used daily (like Inuvo’s ALOT search and Bargain Match’s shopping tools) and whose operations could be materially impacted by the “religious” use of their services on a day to day basis. Thus, Travelzoo is no longer a GrooveVC “focus” stock and we will no longer be offering updates on it.
We like to have two “focus” stocks at a time, so we will begin the process of seeking out a new focus stock to add. Please send ideas with the understanding that a company as large as Travelzoo is a little too big. We are looking mainly for micro cap names and the best fit would be one that has services we can all use, get our friends/associates, etc. to use with an eye towards having a material impact on their operations over time. Please send as much info as possible along with resources to help us with the due diligence process. Thanks for being a part of the Groove community!
This morning Inuvo released preliminary results for Q4 2012. We believe that revenue of $16.2m is significantly better than most investors had been expecting. When Inuvo announced the departure of Peter Corrao in December, the stock had been trading in a range of $1.10 – $1.30 and the general feel we were getting from a large cross section of the shareholder base was that the fourth quarter numbers would come in below Q3. While Inuvo had not given official revenue estimates for Q4, a decline from Q3 would have been disappointing in light of former CEO Peter Corrao’s comment on the Q3 call that the company expected to report a sequential revenue gain in Q4. Given Peter’s comments followed by his departure and the same day filing of the 30 day extension with Google, many took this to mean that the company would likely report a sequential decline in revenue and also that the Google contract would not be renewed. We believe this is the reason that the stock has fallen 30% (from $1.17 on the day Corrao’s departure was announced to yesterdays close of 82 cents) since that time.
We note that the two analysts who cover Inuvo both had slightly higher revenue estimates for the quarter. However, we also note that both estimates appear to be somewhat stale, given that Corrao made it very clear in the Q&A session following the quarterly conference call on November 8th that the company did not expect to achieve double digit sequential revenue growth in Q4 and both analysts had estimates that were in that range. Thus, we do not believe that investors will perceive today’s report as anything less than very positive. Additionally, Richard Howe’s comments that the company is starting 2013 with “a solid foundation” suggests to us that much of the hand wringing over the expiration of the Google deal will prove to be all for naught. Of course, the company has never been able to issue a press release even when they do execute a deal or an extension with Google, so it is unlikely that we would see a comment in a company update that would mention Google. However, we continue to believe that the Google deal will be renewed on substantially similar financial terms and we would not be surprised to see it expanded.
In summary, we believe that Inuvo’s stock has traded down 30% over the last 40 days due to concerns that Mr. Corrao’s departure foretold a Q4 revenue decline and a loss of the Google contract. We now believe neither will prove to be true and that the company is well positioned to report strong year over year revenue growth while achieving sequential declines in the operating expense base for each quarter of 2013, though we would not be surprised at all to see the company sold at a significant premium to today’s trading range before we get a chance to see that occur.