Want to start a thread to break down all the elements and arguments around Velti. Encourage anyone to post (spam and pumper/basher free) additional thoughts along four threads: long case, short case, valuation methodologies, and Q4’12 earnings/guidance.
From SA, and appears to continue to trade up Friday AH: (short case, hopefully with carry-forward)
Friday, March 1, 4:20 PM ET
A favorable write-up in the New World Investor newsletter may have helped Velti (VELT +8.4%) close with a big gain. The mobile ad agency, crushed a month ago after analyst day comments failed to go over well, delivers its Q4 report on March 12. 42.5% of the float was shorted as of Jan. 31.
Sentiment: Strong Buy
- Expect earnings/guidance beat or miss is at 50:50 probability
- Have to believe analysts have as good a view as anyone to make estimates
- Key question is did they win business head to head against MM or is the market soft
- They are clearly signing up customers, but is ad volume following quickly or delayed
With respect to your first and second bullets, I believe better than 50% and not so sure about the analyst estimates. My view is based on comments by Velti management on the Analyst day call and analyst averages per Yahoo! Finance.
With respect to the first bullet, CFO clearly stated that earning would be meaningful in 2013. He also said the company basically had to watch how it spends in the first half of the year as the earnings in the first half will basically need to help carry the second half of the year. That shouldn't be inferred that there will be negative EPS in the latter part of the year. This year is about getting Free Cash Flow. Let's hope so.
It's not likely that all of the earnings will happen in Q2 and none Q1. In addition, the CRO clearly made statements of a quantum leap in sales. To make such a statement, you have to be fairly confident--if you're wrong, then one leaves the possibly of not being taking seriously in the future. The CRO further went on to state that Retail for Q1 will be better than Q4.
As for the analysts, the average for EPS for Q1 is -$0.04. Down from -$0.03 just a couple of weeks ago. If you take this estimate in the contex of what the CFO stated on Analyst Day, then IMO there is a serious disconnect. I can't see how the company can make enough money in Q2 to carry them through the end of the year. Again, CFO stated said first six months not just Q2 would carry the company to the end of the year.
I have the same question as in bullet 3 and will be looking for that as well as FIRM EPS guidance. Guidance with any positive EPS guidance for Q1 would be great news and I would suspect the stock price would reflect the same. With the call so late in the quarter, they should have a good sense of where Q1 stands.
- MM is at 3x revenue, which puts VELT at $10 a share
- Buyout would probably be in the $9-12 a share range based on premium to last trading levels over the last couple years
- With 20% EPS growth next year, should be at a PE of 20+ which would put it at $10 a share
- Technology is not as robust as company claims
- They are going to need to raise more cash through a secondary offering which will dilute ownership heavily with the stock at these levels
- Quarterly earnings will be poor consistent with MM
- Large short positions points to “smart money” knowing that bad news is on the way
- The company will continue to make poor acquisitions
- Growth Market 40%+ Revenue Growth in Industry
- Leading technology platform in the industry over MM which is lower tech and high sales touch
- All revenue is pay for performance (click based) so proven results
- Greek/Balkan disruption as clouded the market’s view, but is less than
15% of the revenue
- No additional capital will need to be raised according to the CFO and with the disposition of the Balkan assets additional sales will be quickly converted to cash reducing the A/R cash needs
- Any additional cash needs would be funded with debt with the stock at these levels
- Position is trading at