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It often happens that stock analysis gets caught up in the theoretical while investors miss the hard numbers. What ends up happening in some cases is that certain stocks get stigmatized in the public eye due to initial failures or long shot business models, and investors stay focused on why theoretically a company should fail while the hard numbers just keep improving. By the time retail investors begin to take notice of the fundamentals, the stock has already jumped while everyone else was busy bashing it.

It is wise to shut out the sentimental noise and look at real earnings and balance sheets every once in a while to make sure you're not missing anything concrete. If a company is showing signs of material improvement and increased efficiency while the public has turned against it, this is investment opportunity 101. Here are four Internet companies, maligned by the investment community for their long shot business models and hounded for past mistakes, which may be turning a corner to profitability making big leaps in the last 2 years. Each company here has its unique strengths and weaknesses, but if and when any of them do turn profitable, stock gains could be disproportionately large.

Pandora (P)

From the moment of its IPO, Pandora was mocked for being a repeat of XM satellite radio companies like Sirius (SIRI) which popped in the Nasdaq bubble and has never recovered. It also added a touch of infamy for having one of the biggest single day gaps down (10%) back in September from $12.10 to $10.50 between trading days, falling all the way down to $7.08 before beginning its recovery. That big down gap was only filled last week, March 7, when its annual report came in. Pandora gapped back up that day 24%, and it is now just below $14.

Pandora is not yet profitable, but its operations are tightening significantly. Revenues are up 400% since 2010 and gross profit margins have doubled. While revenues have quadrupled, administrative costs have only increased 340%, showing more income at less cost to the company. Pandora has also paid off all its debt which wasn't huge, but nevertheless, its balance sheet is now debt free.

To venture into the theoretical for a moment, Verizon (VZ), after acquiring Hughes Telematics, which specializes in wireless Internet connectivity to things like cars, will start installing internet connectivity to next generation vehicles. Once that happens in earnest, Pandora could start replacing both radio and XM. XM has to charge money in order to cover its satellite operating costs. Internet radio has no satellite operating costs.

Pandora is going up.

Groupon (GRPN)

Groupon has been maligned even before its IPO for having a business model with virtually no barrier to entry. A high schooler can operate a bare-bones Groupon-type service out of his mom's basement on weekends, it was claimed. Constant press about daily deal fatigue kept coming in.

Meanwhile, Groupon's numbers keep improving. Revenues are up 646% since 2010 while its SG&A expenses have only grown 211% in the same period. That's an efficiency increase factor of three. Even more impressive is that administrative expenses are actually down 5% since 2011 while revenues were up 45% in the same period. Groupon is finally getting its groove on. Net losses keep shrinking, 86% in two years. At this rate, Group will achieve an annual profit this year. There is still $671M of short term debt on its balance sheet, but this can be paid down once the company is profitable. Not many investors have seemed to notice the improvements, as at $5.25, GRPN is still far, far away from its initial price of over $26 a share, notwithstanding that the IPO was in fact overpriced in any case.

There is a lot of upside here if Groupon's earnings keep improving and expenses shrinking as they have been, notwithstanding its wide open business model.

Zynga (ZNGA)

Zynga, the much made fun of Internet gaming company, has been consistently mocked for being a Farmville one-hit-wonder. Can a company really make all that much money selling games to Facebook (NASDAQ:FB) users while there are so many free games all over the place online?

While investors keep asking themselves these theoretical questions, Zynga's revenues keep rising while its costs have been falling in the last year. Revenues are up 114% since 2010. Administrative expenses are up 153% since then, but more importantly, they are down 24% since 2011, while revenues have increased 12% since then. Net losses were halved since last year as well. Long term debt is only $100M, or 3.4% of market cap.

If this improvement continues, all the theoretical questions of whether online gaming can work will be answered. ZNGA is nowhere near its highs of $14.70, though the stock seems to have found bottom as some investors have caught on to the improving fundamentals.

Mobivity (MFON.OB)

While Mobivity is not in the same league as the other three companies here, the story is similar. A mobile/Internet advertising service company with a business model that looks like it shouldn't work on paper. Mobivity teams up with local and national advertisers to connect with their viewers/customers through their smartphones, monetizing Twitter followers and Facebook fans among other things by streamlining data through its mobile advertising platform. Won't people get annoyed if they are advertised at too much through mobile Internet ads and text messages? Theoretically, yet the company, while not profitable yet, is increasing revenues dramatically and lowering its operating costs just like the others.

Before I mention the positive, Mobivity's weakness is its debt, which totals $6.1M on its balance sheet, which is too big for a company of its size of $5.8M. Interest payments are eating into its profits and must be curbed. That said, annual revenues are up 62% year over year from 2011 at over $4M, and up 343% since operations began in 2010. During the last 4 quarters, administrative expenses have dropped 32% while gross profit has increased 22% in the same period. These numbers are the company's best strength and must continue if Mobivity is to be profitable. If these improvements continue into 2012, the company should have no problem finding a way to consolidate and pay off its $6M debt, big for the company, but quite small in an absolute sense.

Currently holding at $.25, Mobivity remains an unknown to most investors, trades on light volume, and continues on its down trend since February 2011, but don't be surprised if that trend is soon reversed as more people see that the company is building its revenue base.

Source: Pandora, Groupon, Zynga And Mobivity: Hard Numbers Show They're Turning A Corner