Archive for July, 2013
Many outlets are reporting that toolbar behemoth Conduit will be acquiring Inuvo competitor Perion in a deal that would value Perion shares at a 50 – 60% premium from where they opened this weeks trading. While neither company has been willing to confirm the deal as of this morning’s market opening, the trading in PERI the last 24 – 48 hours suggests something is up (click below for 5 day chart):
Peri is up another 5%+ this morning on very large volume. While rumors like this are commonplace, the detail and specificity (split of mobile and toolbar ops then reverse into peri) given in these reports combined with the trading action in PERI suggests there may be something to these rumors –
These companies represent two of the closest comparables out there for Inuvo (in terms of business model) and such a combination could shine some light on Inuvo’s smallish valuation and create an even bigger player in the space who might look Inuvo’s way for future growth by acquisition. It will be interesting to see if additional capital starts to flow into Inuvo when and if this deal is confirmed.
Last week, Inuvo held its annual shareholders meeting at the new Inuvo home office in Conway, Arkansas. A good recap on the meeting can be read here:
Since our last update, Inuvo shares have traded in a range between 75 cents and a dollar, with a short term dip into the low 70’s as the trading flow slowed to a trickle (note Friday’s volume of less than 1,000 shares). This is not that surprising, as we have often seen much slower trading in the Memorial Day to Labor Day period in prior years as well. Additionally, the trading action in INUV shares has often reflected what we typically see with thinly traded small cap stocks during slower trading periods, which is a slow and steady decline in the share price until news is released that brings investors back to the table.
We remain concerned about the potential for near term weakness in Inuvo shares in spite of what we view as a long term positive situation. While we believe that the company’s move to Arkansas will prove to be a big positive for shareholders when the lower cost structure begins to be reflected in the quarterly results (not to mention the qualitative benefits that we believe will eventually accrue to shareholders benefit), we would not be surprised to see some investor skittishness in the near term as the impact of changes in what is required of Google’s advertising network partners impacts Inuvo’s results. Management was very clear in the Q1 conference call that the Google changes had required significant adjustments to be made and that the company was adjusting its ALOT customer acquisition model to reflect the new reality. The daily revenue range ($155k – $170k per day) Inuvo management indicated on that call suggested a fairly significant decrease in revenue from what the company achieved in Q1. As the second quarter comes to an end, we believe concerns about a weaker Q2 could cause weakness leading up to the report and/or if investors find issue with the actual report it could lead to declines from current levels that could be exacerbated by the lower trading volumes.
In summary, we believe that Inuvo’s stock is cheap at current levels and note that insiders seem to agree (click here to see the Form 4’s filed since our last report). While Inuvo shares could certainly trade lower due to investor disaffection with Q2 results, we think that would create a very good opportunity to buy undervalued shares at even lower prices.
Remark Media Update – Shares in Remark Media remain range bound between $2.80 and $3.20. As has been typical, there has been very little trading in the shares over the last few weeks as the trading is often driven by company specific news and there has been none. Given that so much of the value of Remark shares is tied up in its Sharecare holding, Remark will likely remain range bound until there is some company specific (Remark or Sharecare) news released. We continue to believe that Sharecare will file to go public within the next year and that its valuation will cause investors to reprice Remark Media’s shares in light of the value of its Sharecare holding and its business creating a Sharecare-like presence in other verticals.