Tuesday, August 12, 2014

Inuvo Tries to Compete With Big Ad Players

The increasing confluence of RTB and SSP in online ad networks means small players have to do both equally well.  Competing with Google in the ad server segment requires nothing less.  Inuvo (INUV) is one challenger delivering targeted ads.  Considering their results is worth a few minutes of my time.

The company's website currently showcases three different functions:  ValidClick, Alot, and their own proprietary platform.  ValidClick is supposed to be an ad server of some sort.  Using search PPC as the core of an ad server works for Google because it dominates search.  The same strategy for an ad server not tied to a major search engine is kind of silly.  Alot is supposed to be a mix of content and apps, but its layout reminds me of how Yahoo and AOL try to be all things to all segments.  That strategy works with a web property already known to millions of visitors.  It is not a smart thing for an upstart to do without the advantage of some very special secret weapon (like the algorithm Google used to overtake Yahoo in search dominance).  The Inuvo proprietary platform doesn't display an ecosystem of publishers, or library of apps, or a search function, or anything else that would lead me to believe there's a lot going on here.  I have no idea what makes the platform compelling.

I always read the fine print of financial statements.  Read their 10-Q quarterly filing for July 31, 2014.  They operate in Arkansas thanks to a state grant that mandates how many employed positions they must fill at specified compensation, regardless of whether they are financially successful.  Revenue must precede the build-out of infrastructure in a small enterprise.  The good news is that they are profitable, but I wonder how much more successful they would be if they could automate away some of those paid positions.  The bad news is that their profit margin is barely over 3%.  Most healthy companies have a much higher figure.

The stock trades at around a buck right now but was significantly higher from roughly 2004 to 2008.  I wonder what the heck they did way back then.  I'm not sufficiently intrigued by this company to go back and look because it's been trading in penny territory for the past few months.  What a company does today is more important than what it did a decade ago.  The online ad business is Google's plaything and upstarts need something really special to stand out.  Inuvo doesn't look special enough to deserve a place in my portfolio.

Full disclosure:  No position in INUV at this time.