U.S. Markets closed

INUV: Higher EBITDA and A New Product Expected By Year End

By Lisa Thompson



Inuvo (INUV) showed the results of refocusing its efforts on higher margin business by reporting a Q2 that showed lower revenue growth than Q1, but improved gross margins and margin after marketing costs. Rather than spend time and money on its company-owned web sites and labor intensive publisher customer support, its current revenue base has been redirected to more automated solutions yielding higher profits. The company reported revenues of $19.0 million up 4% from the $18.3 million reported a year ago as for the first time the company had full quarters of NetSeer revenues as it was purchased February 7, 2017. This revenue number was preannounced in July.

Margins improved versus last year with gross margin before marketing expense moved to 63% versus 58% a year ago and 57% in Q1 2018. After marketing spend, the margin also improved. This year it was 18.8% while last year it was 17.2%. Comparing the first halves, H1 2018 margin was 17.7% versus 16.9%. For the quarter, margin dollars after marketing costs were up 13% in the quarter on a 4% increase in sales.

In this year’s quarter Inuvo had the opportunity to make money on about 2.6 billion pages in Q2, down from 5.0 billion pages last year. However the RPM was significantly higher at $7.40 versus $3.70. Mobile was again 70% of total revenue.

Expenses increased to $12.8 million versus $12.0 million a year ago, but operating losses declined to $0.7 million versus $1.3 million. Head count declined to 64 from 92 at the end of March.

The GAAP net loss for the quarter was $0.8 million versus $1.4 million a year ago. GAAP EPS loss was $0.03 vs. $0.05, but on a non-GAAP basis is was $0.03 in both years.

EBITDA for the quarter was $336,000 up from $167,000 a year ago. For the first half of the year EBITDA was $191,000 versus a loss last year of $496,000. The company expects to double the full year EBITDA of last year’s $1.1 million.

The strategy for Inuvo investors and management has always been to grow the business large enough to be attractive as an acquisition. Once the company reaches over $100 million in sales next year, we believe it could be large enough to be an attractive acquisition to a larger company. The M&A market is certainly variable however, and while private company valuations are high, competitors Outbrain and Taboola have not fared well lately and the appetite for Inuvo may be currently dampened.

Inuvo continues to market a unique solution to advertisers and should be able to increase sales and penetration by its differentiation. Its ability to understand the context of the pages on which it is serving ads, its privacy protections, and its new offerings should make it a key choice for advertisers as they continue to winnow away at the number of ad vendors they use. In particular, in this age of an assault on privacy by web sites and social networks, customers should embrace Inuvo’s future new product which will give an alterative way to target consumers other than the use of cookies that are increasing under attack as a method of tracking. By using cookies placed in a browser, big ad or media providers such as Google can track which web sites you visited, even if you didn’t login.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR. 

DISCLOSURE: Zacks SCR has received compensation from the issuer directly or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.