By Lisa Thompson
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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.
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By Lisa Thompson