Inuvo – the Profitable Small Cap Mobile Advertising Company
Shares of Inuvo have continued to show strength in the face of broader market swoons over the last few weeks. The company’s Q2 report came in stronger than we expected in most respects and we expect the trading price of Inuvo shares to begin to reflect this strong performance soon as the company’s earnings growth and the revenue trajectory of its nascent mobile advertising business begins to attract the attention of investors.
Inuvo’s management has successfully transitioned the company from an increasingly difficult to operate toolbar business to a rapidly growing mobile advertising network of third-party sites and rapidly scaling ad business driven by its owned and operated sites. This model holds significant advantages to the dying toolbar model and the company’s execution of its new content focused approach has already achieved the primary goal of replacing the toolbar revenue. The bullish take away from having done that in the second quarter is that it usually takes 6-12 months for most content to get indexed, linked from third-party directories, etc. and the newness of the content Inuvo has created means that what has been achieved thus far has likely occurred with very little organic traffic. As we begin to annualize the production of these content heavy websites, we should see more organic (read “free) traffic in the mix, which will make these operations even more profitable. Additionally, as the company’s partners grow and the company’s network of partners grows, we should see the mobile traffic and revenue grow to represent the majority of Inuvo’s revenue. We believe this will occur in the current calendar year and that this achievement will cause Inuvo to gain much more attention from investors.
The growth expectations for mobile advertising over the next few years are enormous, with mobile ads overtaking newspaper ad spending for the first time in 2014 and other media over the next few years. While many companies have been pitched to investors based on the promise of gaining a share of that huge growth, many have yet to solve the puzzle of how to grow a mobile advertising business to be profitable. In the small cap space, Inuvo will soon be not only one of the fastest growing in terms of revenue, but one of the only profitable small cap plays in the mobile space. As the juggernauts continue to dominate the space and show the profit potential for mobile advertising, there will likely be more investors looking for an investment vehicle of a size where significant mobile advertising growth can move the needle. Inuvo is well positioned to be that company. Hold onto your shares and do not be tempted to let some go on the days we move 5-10% higher. As the stock establishes a trading range north of $1, more investors will start to find their way to the Inuvo story and begin to understand what we already know – Inuvo’s valuation represents a complete disconnect from its prospects and the stock is dirt cheap below $1.50.