Archive for April, 2016
A community update following the release of Inuvo’s (NYSE Mkt: INUV) Q1 results and in anticipation of quarterly results coming soon for Remark Media (Nasdaq: MARK) and Rave Restaurant Group (Nasdaq: RAVE) –
Inuvo reported Non GAAP earnings last night that beat estimates by a penny, but weakness in its core business during March caused the company to came up short on the revenue side. Despite its 8th consecutive quarter of GAAP profitability, investors were less than enthused due to comments on the call that indicated that March weakness had carried over into April and management is now expecting a weaker second quarter to result. The positive comments on the call were largely focused on the Searchlinks roll-out and the potential for big game hunting type account wins, but it appears that investors are more focused on the reported partner revenue results that came up short. While management pointed out that most of the shortfall could be attributed to the company’s acquisition of several of the better performing partner sites and this essentially moved that revenue from the Partner Network to the Owned and Operated Network side, we believe that that investors were disappointed due to an expectation that Searchlinks revenue would have grown to make up for a much larger portion of that revenue shift by now. We suggest investors remain cautious on Inuvo with a wait and see approach as we expect that future Owned and Operated revenue growth will slow and continue to be mostly offset by the additional advertising spend required to produce it, Additionally, we have viewed Searchlinks as the key catalyst for growth and from a revenue production standpoint, it does not appear that Searchlinks has gained significant traction yet. Management comments on the call suggest that they do not expect this to occur in Q2 either which means investors may have to look all the way out to Q3 to see evidence that Searchlinks is the catalyst that will take the company to the next level.
Remark shares seem to have settled into a trading range between $4.50-$5 and the trading in the stock has fallen off precipitously. The company’s acquisition of the Vegas.com assets has transformed Remark into a completely different company that is heavily impacted by online travel bookings in a concentrated geographical area. While the company continues to develop its Kan Kan and Bikini.com initiatives and it gets meaningful revenue contribution from its tax and financial domain businesses in Q2 each year, it appears that there is currently very little if any synergy between these businesses. While the monetization of the Sharecare asset could provide an opportunity for upside, we believe that investors are largely taking a “wait and see” approach with Remark as many find the long term growth story with these disparate businesses to be increasingly difficult to understand.
Rave Restaurant Group
Rave Restaurant Group’s shares seem to have found support in the $5 range and settled into a trading range between $5 and $5.50. The departure of senior VP Chris Smith following the closing of several underperforming Pie Five locations seems to have dampened investor’s enthusiasm for the Pie Five growth story. Given these closings and the upcoming Q3 earnings report where additional closings and challenging same store sales figures will undoubtedly be part of the narrative, we do not expect to see significant upside in the very near term, though we remain cautiously optimistic on the long term picture.
We are increasingly concerned by JRJR Network’s lack of communication with shareholders.
In the absence of evidence to the contrary, we are required to read the tea leaves and infer what is going on from the bits of information that are available. BDO has been serving as JRJR’s accounting/auditing firm for about a year now. There was no prior indication that the company might have any accounting issues that would require a late filing. At literally the 11th hour, the company hired a new CFO and filed for an extension, on which they indicated that they expected to file within the 15 day extension period. That day came and went with no additional new releases or filings until the SEC deadline for disclosing the deficiency letter from the NYSE Mkt due to their failure to file within the 15 day extention period. It is difficult to see this as just an extreme disregard for shareholder communication, as it also gives the impression that there may be some surprises when the 10k is ultimately filed. In our experiences, surprises that cause delays of this kind (delays that are kept under wraps until the last possible minute) are not good surprises.
While our general bull thesis could remain intact, it is difficult to know if the turnarounds (Longaberger, Agel, etc.) are progressing, if the newly acquired UK companies are delivering improved margins and if the growth trajectory of YIAH has continued to impress. These things are not knowable because there have been no financials filed that would give official numbers for going on 8 months now. Worse yet, there have been no press releases giving any indication of anything (positive or negative) with these companies with the exception of the pro forma revenue figure released a few months back. The bottom line here is that the lack of shareholder communication raises the risk profile for JRJR Networks significantly. While the current price could turn out to be a tremendous bargain (and we hope it does), we do not currently have the information that would allow us to be certain of that.