Inuvo’s Google Contract Upgraded

August 26, 2014 at 8:53 am Leave a comment

Inuvo’s contract with Google was just amended in a way that allows Inuvo access to Google’s higher quality display ad product, which appears to be a much higher quality offering using Google’s re-targeting technology. The impact of this on Inuvo’s top and bottom line could be substantial It appears that the upgraded display ad product has just gone live on the ALOT network of sites and below we discuss why that will prove to be a big deal.

In the most recent quarter, Inuvo’s websites reported that unique visitors to the sites had risen from an average of 3 million to 3.5 million per month. Given that revenue in Q2 was reported at an average of just over $3 million per month and we know that Inuvo’s July revenue (pre new Google display ad offering) was around $4 million, we believe it is a fair assumption that ALOT uniques are trending significantly higher than the 3.5million average for Q2. Beginning this month, when the 3.5 – 4 million unique visitors click-through to one of the ALOT websites (Living, Finance, Careers, Local, Health, etc.), they will likely be served a Google network quality display ad that is related to something that consumer has searched for recently. The likelihood of that consumer clicking a display ad like that has proven to be exponentially higher than the likelihood of their clicking on a random display ad unit of the kind Inuvo had previously offered in those places. The importance of this should not be lost on Inuvo shareholders. So much of Inuvo’s revenue is driven by spending $x to get y number of visitors to its sites because they will then click on an average of z ads which produces the revenue we earn. Now when Inuvo spends x to get y visitors, the z will likely be a substantially higher number allowing the company to produce a higher level of profitability and more likely, increase the x spend to get more y visitors who will click through ads at a higher pace so that our growth has the potential to scale higher at a faster rate of profitable growth.

Inuvo’s share price has only just now regained what was lost when the company appeared to be in danger of losing its listing due to the NYSE shareholder equity issue, when the stock fell from its $1.30 – $1.50 trading range on delisting fears. That issue was put to bed several months ago, but the stock is only just now reflecting that. In the meantime, the company’s operations, reported numbers and prospects have improved dramatically and Inuvo’s share price currently does not come close to reflecting this.  We believe none of the following are priced in at Inuvo’s current trading price in the $1.40 range –
1) the potentially higher margins and accelerated growth due to the new Google Contract upgrade as discussed above
2) the new content that was developed and paid for in full during Q1 that is likely to be just beginning to drive organic traffic
3) the company’s faster than expected growth in mobile ad revenue (which grew 40% of overall revenue in Q2).
4) a much improved credit facility that will allow the company’s expansion to accelerate without issuing new stock at the current ridiculous valuation.

Thus, Inuvo trading at prices under $2/share may prove to be a short lived phenomenon. Even if Inuvo trades up to $2 per share it would still be trading at just below 1x revenue, which is very cheap for a rapidly growing and profitable small cap company in the mobile ad space.  Over the past week there has been rumors, message board chatter, etc. of an Inuvo acquisition in the $2 per share range.  While we do not doubt that Inuvo is being approached by companies with similar business models but outsized stock valuations vs their revenue and growth outlook, we think the price would have to be higher than 1x the current revenue run rate for Inuvo shareholders to find it attractive.

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