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Although eMarketer dramatically upgraded the mobile advertising market this week, the leading mobile marketing firm faced a tumultuous October and November. The stock has bounced back tremendously in December yet it still sits below the October highs of $9.

While the majority of the sell off for Velti (VELT) was related to company failures, the rebound has as much to do with recent hires such as an experienced technology CFO. The sector continues to improve providing for plenty of upside if the company can get its act together.

Following a strong Q2 earnings report (see article here) in August, the stock had surged to $10. It appeared to be on a path to enrich shareholders until the Q3 report blew up the stock. Ironically the company only sold a division with incredibly long payment terms and accelerated research and development expenses, both previous demands my shareholders. The company actually guided towards the original expectations so the market reaction was surprising.

Q3 Earnings Highlights

The company reported the following earnings highlights for Q3 2012:

  • Record revenue of $62.4 million, an increase of 62 percent from Q3 2011; $66.6 million or 74 percent on a constant currency basis.
  • Revenue less 3rd party costs of $39.7 million, an increase of 63 percent from Q3 2011.
  • Adjusted EBITDA of $6.7 million, compared with $5.6 million in Q3 2011, an increase of 19 percent.
  • Adjusted net loss of $1.8 million and adjusted EPS of $(0.03) compared with an adjusted net loss of $1.1 million and adjusted EPS of $(0.02) for Q3 2011.

While the earnings missed the Q3 estimates, the company did guide to higher EBITDA for Q4.

New CFO

The company announced on Monday that former Sybase CFO, Jeff Ross, had been hired as the CFO effective January 7, 2013. Jeff was the CFO of Sybase since 2007 until SAP (NYSE:SAP) bought it.

The current CFO will shift focus towards the fast-growing Asian markets. The fact the CFO remains with the firm reduces the concerns of issues with the company other than the CFO struggled with handling Wall Street.

The new hire adds to the credibility of the firm including recent additions in the positions for Chief Revenue Officer, SVP Product Management, and SVP Human Resources.

eMarketer Ratchets Up Mobile Ad Expectations

The marketing research firm is now forecasting faster-than-expected growth for US mobile ad spending. Firms such as Facebook (NASDAQ:FB) and Twitter are seeing strong results for "native" display ad formats. In fact, within 3 short months the firm has forecast a dramatic increase for 2012 from $2.6B to $4B. The upward revisions continue for periods all the way through 2016. As the chart below shows, the amount will reach nearly $21B.

Even more important is that the 2012 forecast is for mobile ad spending to reach only 2.4% of the total US media ad spending. The number by 2016 is expected to rise to only 11% where it will finally surpass newspapers after only passing magazines in 2015.

Analyst Updates

With the sale of the Greek related assets, analysts have now updated the 2013 estimates to earnings of $0.71 and nearly $350M in revenue. This is a substantial reduction from the previous estimate of $0.96.

From a valuation standpoint, anybody selling the stock down to $3 in November clearly over reacted. Even with the surge back over $5 on Wednesday, the stock only trades at 7x forward earnings and less than 1x revenue.

Typical numbers for a company that guided towards 30% revenue growth would be 30x forward earnings. If the new CFO can convince analysts that the future is as the company guided, the stock has significant upside in 2013. It could be the stock of the year.

Conclusion

Investors will likely look back at the early December prices in the low $3s and regret not buying the stock. The new hires and revenue growth could significantly boost the stock in 2013. The faster growth in mobile ads might provide more upside as well. The sky still appears to be the limit for this company regardless of the fears over the restructuring in the company.

Source: Is The Rebound In Velti For Real?

Additional disclosure: Please consult your financial advisor before making any investment decisions.