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.