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David J. Norton
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I am a graduate of Syracuse University's Whitman School of Management, where I pursued bachelors of science degrees in finance and accounting. During my time at Syracuse, I was an active member of Literacy Corps; a program designed to improve public education among primary schools in the US. In... More
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  • Velti: A New Age of Mobile Advertising

    As the economy charges back (knock on wood) from the financial crisis there are ample opportunities to be had. Equity investors have embraced the risk/reward tradeoff that exists in this environment of rock bottom interest rates and a surging market. Despite the tragedy in Japan, despite the turmoil in MENA, and despite the often-indecisive waver of our own government, the economy seems to be holding strong. Had these events happened nine months ago, the front pages might still be echoing the notion of a double-dip recession. But for those persistent naysayer's, I send my condolences as they have and will continue to watch everyone else make money in this market.

     One often-overlooked economic subsector is that of advertising. As a whole, advertising predictably lags other industries. The blue chips of the world need to have ample cash themselves before they can commence such discretionary spending on advertising and marketing projects. This being said, no one can debate that companies are cash rich, and I am actively looking to capitalize on the advertising industry before everyone else wants to ride this wave up.

     According to ABI research, worldwide mobile marketing and advertising spending is expected to increase from $1.64Bn in 2007 to over $29Bn in 2014. While 1,670% top line growth in just 7 years looks a bit extreme, it makes sense, given the boom in smartphones and tablet devices. We are quickly migrating to an all-digital age and those that can capitalize on this trend stand to do quite well.

     VELTI (ticker: VELT) is a ten-year-old Irish company that just delisted in England to go public on NASDAQ in Q1 2011. Velti is starting to draw some attention as various Wall Street firms such as Jefferies, Needham, RBC Capital, and ThinkEquity have put strong buy ratings on the firm (although I wouldn't hold too much weight on this. These companies led the IPO and while I am NOT implying anything, I think their view’s may be of limited use).

     Velti has a platform that enables their customers to have a full-fledged marketing campaign through the use of mobile applications. Velti helps their customers plan a marketing initiative, continuously reach the end users, create cost effective micro-sites, interact with their customers through SMS and MMS, and measure and review marketing/advertising results. They are the first true public firm to enter this arena but as the industry grows at such a blistering pace, one would be amiss to not expect more.

     Looking through the numbers, Velti is actively diversifying their customer base geographically, while increasing it 40% from last year. In doing so, the firm also decreased its reliance on individual customers. Top line growth has improved nearly 30% since its 2009 report. Acquisitions ate up all of the profits however, as the firm was actively seeking to keep pace with demand for its platform.

     The firm is actively growing its balance sheet as total assets are up 65% from 2009 and over 550% since 2006. One caveat however, is that Velti did drastically increase its leverage in 2009-10 to finance such growth. Its quick ratio currently stands at about 0.14, while its current ratio is at 1.02.

     As I mentioned earlier, it’s hard to do a good comparable analysis on Velti. Its price/book ratio stands at 3.5, which may be steep, but given the speculation on the industry, its current P/B might tend to be overlooked. Deservingly, I wouldn't comment at this point.

     Velti is at a crossroads. It is most certainly characterized as a growth company. Judging by their ambitious acquisition spree, this label is unlikely to change. The true test of their prosperity will be if they can manage their operating costs and establish a less volatile profit margin. Third-party costs to various mobile service providers (Verizon, ATT, Sprint, and the likes) for providing a network are the biggest question mark. More than one-third of all costs are third-party related and as the firm grows, management is certainly reliant on economies of scale for cost reduction in this arena.

     Velti is up 73% YTD, and 19% in the past 5 days. This might be a bit overdone given the numbers behind the firm, but there is no doubt that Velti is a company I will have my eye on. From what I gathered on the Q4 earnings call, firm management is confident in its optimistic forward guidance (along with the underwriter's research departments). Should they all be right, the stock could jump even further, along with giving a shot of credibility to the team running it.

    This industry is here to stay and right now, Velti is definitely an interesting candidate. Congratulations to those who have been long since its IPO, or in the past week for that matter. For now, I'm definitely looking forward to the Q1 earnings call.

     

     

     Disclosure: No positions. I do not represent my employer and my opinions may not necessarily be their own. My comments and opinions are strictly based on public information and I do not have any privied information on anything I comment on.

    Tags: F
    Apr 01 1:12 PM | Link | Comment!
  • Citigroup's Reverse Split Means More Than Meets The Eye

    This week’s announcement by Citigroup's management to enact a 1-10 reverse stock split could in fact be the bellwether of growth for one of the most scarred banks of the financial crisis.

    Citi's over levered balance sheet and portfolio of toxic agreements with insolvent counterparties was what led the financial giant to the brink of bankruptcy. Vikram Pandit's firm barely weathered the storm, and after a 90% decline in share price from just five years ago, Citi is now a compelling buy for any value investor and here's why...

    Out with bad in with the good. Citigroup is divided into Citicorp (Consumer Banking and Institutional Clients group) and Citi Holdings (Asset Management and Lending). Much of the firm's plight was due to the latter, Citi Holdings. It has been a sore on the company’s books and one of the biggest hurdles to overcome since the trough of the financial crisis. In 2010 however, Citi Holdings represented just 19% of Citigroup as compared with 38% in 2008. Through successful divestments of Smith Barney and other asset sales and pay downs, Citigroup is getting back to its core competency and growing on the Citicorp business. Its consumer units in the emerging markets, notably Latin America and Asia, will be the biggest stimuli for long-term growth.

    Contrarian belief on financial services. Buy low and sell high is a common saying in investing that often goes ignored, in practice. In fact, buy low and sell high could be more easily understood as "buy into fear and sell into greed." What we have seen since the collapse of Bear and Lehman, is a market driven by fear. Of the 10 sectors, financial services were, and continue to be, the most oversold. It is trading at a deep discount when compared to the overall market and unless you believe that sector is eternally doomed, it is certainly ripe for a buy. Citi is trading at a Price/Book of 1x and has a Price/Sales of 1.2x. JP Morgan, perhaps Citi's closest peer is trading at Price/Book 1.6x and has Price/Sales of 1.6x. Additionally, Citi is trading at 12x earnings and with an improving balance sheet and an undervalued sector, it seems to be among the most appealing of the large bank stocks. 

    Throw the technicals out the window. Say goodbye to Citi's $3-5 eternal trading window! Day after day, Citi was top of the charts in terms of trading volume. Traders have been playing volatility to make money on Citigroup, at the expense of the stock price and the small time non-institutional shareholder. The more they trade in terms of share volume, the greater discounts they receive from the brokerage houses. In turn, actively driving up or down the price just a few cents could prove to be quite lucrative for those opportunistic volatility traders. With a price in the $40 (post-split) range, these volatility traders will look elsewhere and Citi will begin to trade on its fundamentals once again.  

    There are certainly other reasons why Citi is a compelling buy, such as the peak in delinquencies which will only rebound, the introduction of a dividend, the improvement of net interest margins and strengthening credit conditions (but these have/are being priced into the markets already). But for those investors who are not out to make a quick buck off of volatility, perhaps Citi is worth another look.

     
    Disclosure: Long Citi, no position in JP Morgan. I do not represent my employer and my opinions may not neccessarily be their own. My comments and opinions are strictly based on public information and I do not have any privied information on anything I comment on.



    Tags: C, JPM
    Mar 21 4:10 PM | Link | Comment!
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