Inuvo Reports Strong Q1 – Groove Update
Groove investors holding Inuvo shares were treated to a strong Q1 report, with revenue of $13.4m and earnings per share of 3 cents, outperforming analysts’ estimates of $12.5 million in revenue and 1 cent per share in earnings. This continued Inuvo’s trend of growing the top and bottom lines YOY and produced what is now the fifth straight quarter of bottom line profitability. More important than the numbers reported for Q1 were the comments by management and their general bullishness on each line of business for the remainder of the year. Management has long been skittish about giving forward guidance so we felt the extremely bullish tone of the call was notable.
Key points on the call –
1) Inuvo CEO Rich Howe’s discussion of the “action metric” as the key determinant of the success of the O&O segments’ success. The action metric tracks the company’s progress in producing revenue generating clicks vs. using the more traditional measures of general traffic trends, unique visitors etc. While these other metrics are not without value, they do not directly measure the things that will create value for shareholders – revenue and profits. The action metric measures both quality visitors (those who do what we want which is click revenue generating ads) and how the quality of those visitors is impacting what advertisers are willing to pay (measured by an increase in revenue per click). Mr. Howe stated “..we’ve seen a 72% increase in clicks and an 18% increase in the revenue per click when compared March, 2014 to March, 2015 within this O&O segment of our business”. This is a very, very impressive achievement and speaks volumes about the strength of the company’s execution of its searchlinks strategy. The implications to Inuvo’s top and bottom lines if this trend continues are huge and management’s comments regarding April trends suggests that to be the case with management comments indicating a 30% increase in revenue over April of 2014.
2) Q&A answers – Mr. Howe’s answers and tone in the Q&A session were particularly bullish. When asked by Zack’s analyst Lisa Thompson about whether earlier comments on the call meant that management was expecting sequential quarterly growth or year over year growth, Mr. Howe replied “both”. Given management’s traditional skittishness about providing quarterly guidance, we thought this was important and very bullish. Additionally, we felt the discussion of potential acquisitions has enormously bullish implications and fall in line with what we have been expecting to see when the stock became more liquid and appreciated to the point that it would make good deal currency. Inuvo is now in position to acquire assets/companies that have consumer appeal as measured by traffic but due to lack of scale, expertise or resources they have been able to sufficiently monetize their traffic/assets. Inuvo has long had the expertise, but was simply not in a good enough financial position to acquire others. The result of Inuvo’s own improvements in monetizing traffic/assets over the last 12-18 months is that they have been able to earn a profit and pay down their debt, something that investors have begun to recognize and the stock price has appreciated as a result. This puts Inuvo in a great position of being able to make accretive acquisitions and thereby accelerate the growth of the company.
Groove investors should not be surprised to see significant volatility in the stock price over the days and weeks ahead as more sophisticated (hedge funds, institutions, etc.) investors begin to build a stake in Inuvo, as they have the ability to move small company stock prices significantly as they build their stakes. Counterintuitively, their interest in buying into the Inuvo story can result in the stock price falling during times when you might expect to see it rise. We remain very bullish on Inuvo’s prospects and view weakness in the stock price without substantive negative news as an opportunity to buy more shares.
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