About a year ago, I read an article on Seeking Alpha regarding Inuvo, Inc. (NYSEMKT:INUV), an Internet marketing and technology company that specializes in marketing browser-based consumer applications, managing networks of website publishers and operating specialty websites. The article stated that the company was in the midst of a turnaround. "Turnaround," has become an overused phrase. Rather than defining a company's successful transition to prominence, it has seemingly become Wall Street jargon to denote a perennially underwhelming company.
Being a microcap investor, it is a necessity to sift through a great deal of information in order to find potential opportunities. Value investors such as me are forced to dig even deeper, so that we can find that hidden gem that for one reason or another is trading below its potential. Often times it requires a great deal of cynicism and critical evaluation. Therefore, while I don't remember my exact sentiment when I read last year's turnaround article regarding Inuvo, I imagine it was mostly met with skepticism and dismissed.
What I do know, is that I like the Internet marketing space, which is expected to exceeded $100 billion in annual revenue by the end of next year. Daily deal companies such as, Groupon (NASDAQ:GRPN) & Nordstrom's Hautelook (NYSE:JWN), industry comps to Inuvo, represent the strong trajectory that the marketplace provides. For a company to be afforded that type of growth it must be acting as a market leader, which brings us back to Inuvo.
What has the company accomplished during the previous "turnaround" year?
1) Improved Financials - For the Second Quarter ended June 30, 2013, the company announced net income of $382 thousand or 2₵ per diluted share for the second quarter of 2013 compared to a net loss of $3.0 million, or $0.13 per share loss last year. Revenue for the second quarter of 2013 was $13.1 million compared to $12.9 million in the same period of 2012. Adjusted EBITDA was $848 thousand, a 316% increase, compared to the second quarter of 2012. The company reported that unaudited revenue for the month of July exceeded $5 million. The company also improved its balance sheet, as it had improved its cash position while borrowings under their bank line of credit were reduced to $6.9 million from $7.8 million at December 31, 2012.
2) Reduced Expenses - In an effort to significantly reduce overhead, the company announced in January of this year that it would move its corporate headquarters from New York City to Conway, Arkansas. Management's promise to create 50 "highly skilled jobs" over the next four years even led to additional funding from the state government. This has proved to be an extremely savvy move, saving the company hundreds of thousands of dollars in overhead. While six figures may not make or a break a company, it does affect profit margins of a microcap stock, and prove to analysts that proper control methods have been successfully implemented.
3) Demonstrate Management's Commitment - As I have noticed in a previous posting, a look at the company's most recent filing will reveal that Inuvo's Chief Executive Officer, Rich Howe and Board Member Charles D. Morgan have purchased shares of the company in the open market. Mr. Morgan is a member of Bridgehampton Capital Management, which bought 115,000 shares of the company's stock in a transaction dated Wednesday, August 14th. The shares were purchased at an average cost of $0.97 per share, for a total transaction of $111,550.00. The purchase was disclosed in a document filed with the Securities & Exchange Commission, This is extremely note worthy, as many brokers and institutions have special alerts set to notify them when management is buying, so that they can purchase along with insiders.
4) Remain Focused on Core Business - The Company recently announced the launch of a new company owned web property, health.alot, a content rich, searchable mobile and desktop ready web property that complements the company's existing ALOT desktop applications and expands a growing suite of owned and operated websites. The site features information on ailments, fitness, dieting, and pregnancy in addition to its utility as a searchable directory for locating local physicians. The rollout seems to be in line with similar web based properties that have continued to drive profitability during the last year.
The company has made a significant amount of headway in their attempts to improve the company, achievements that have not gone unnoticed within the investment community. The stock has nearly tripled since April of this year, rising from $0.59 to $1.47. The average daily volume has also dramatically increased, which is a key factor in obtaining Institutional investment, a vital catalyst for any microcap stock. The company has attended three investment conferences within the last month, and their message remains the same, they are improving financials, increasing product offerings, and managing cost controls. There is no guaranteed method for success on Wall Street, however, Inuvo's recent accomplishments may be strong enough to make even the most cynical "Turnaround".
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.