Internet Hot Stocks, Google, Yahoo - And Inuvo?

| About: Inuvo, Inc (INUV)

When investors look to invest in Internet stocks, the usual candidates come to your attention. Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO) and Microsoft's (NASDAQ:MSFT) Bing are multibillion dollar corporations that have dominated the landscape for years. But what if you are an investor looking for an emerging growth company operating in a similar space to these household names? Opportunities appear to be few and far between, however, Inuvo Inc. Inuvo (NYSEMKT:INUV), an Internet marketing and technology company specialized in marketing browser-based consumer applications, managing networks of website publishers and operating specialty websites, may fit your investment criteria. Please read my previous article on the company, "Inuvo: A Successful Turnaround Story Poised for Growth."

Inuvo announced revenue growth of 89% to $15.5 million with adjusted EBITDA increasing over 1,000% to $1 million for the 2012 third quarter. Additionally, revenue and adjusted EBITDA has increased 20% and 150% sequentially. In the press release and conference call management expressed it believes that this trend will continue during the fourth quarter of 2012, into 2013. Management even goes as far to say that October was a very strong month.

During its earnings conference call, Peter Corrao, CEO of Inuvo, discussed the strategic plan of the company, which is to increase Tier 1 market search queries that provide higher margin revenue. This compares with competitors whose primary focus is to grow their user base among multiple tiers. Much of Inuvo's success in the third quarter stems from higher margin revenue, generated mainly in Tier 1 locations such as the United States, Great Britain and Australia. Currently, Inuvo has a market presence in 26 countries and 8 languages. I believe that by focusing efforts on these areas, Inuvo will be able to generate higher adjusted EBITDA results in the fourth quarter and beyond.

Management is expecting increased revenue going forward from adding new publishers as well as an increase in financial performance from owned and operated properties, including local.alot and Yellowise. These recently launched properties produce higher margins based on Inuvo owning them directly. On the call the company expressed that it had 1,500 publishers and expects continued growth in this third-party publisher base during Q4. Expectations are for the Publisher Network to generate sequential revenue growth.

Lastly, management discussed the launch of a new BargainMatch platform that will enhance revenue in Q4 and throughout 2013. Management hinted at further announcements about the enhancements and new capabilities over the next 7 days. This will serve as yet another catalyst in propelling the company to trend toward profitability.

The fourth quarter will be very telling to the earnings power Inuvo will have in 2013. Management has done a good job in remaining disciplined with spending in the past 6 months and therefore has narrowed its net loss and trending toward becoming cash flow positive. Management is ahead of previous expense reduction projections and therefore I believe will reach profitability sooner than many investors estimate. The company stated it is currently tracking $900,000 ahead of the $2.9 million annualized operational savings it expected in expense reductions following the March merger of Vertro.

Even after these terrific results, Inuvo remains trading at a discount to its competitors based on a Market Cap/Revenue valuation metric when compared with ValueClick, Inc. (VCLK), Blucora, Inc. (NASDAQ:BCOV), Demand Media, Inc., (DMD) and Perion Network, LTD (NASDAQ:PERI). This should be corrected over the next 60 days as Inuvo continues to experience double-digit growth.

Disclosure: I am long INUV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.