Sizmek Short Squeeze May Be Imminent In The Wake Of Game-Changing Q4 Results

  • There are nearly 3.4M shares of SZMK short as of 1/30/2015, representing over 15% of the float.
  • Heavy recent hedge fund accumulation and share buybacks are likely to drive a short squeeze.
  • Q4 results and 2015 guidance well exceeded expectations and confirm market pricing disconnect.

I’ve written about Sizmek (NASDAQ:SZMK) a couple times, with my firstarticle being published only a day before the company guided Q3 revenues down due to unforeseen weakness in the legacy-rich media business. My follow-up article was written right after the release of this Q3 report, where I reiterated my buy thesis at a deeply discounted price to where I initiated my coverage. The Q3 report was not as bad as expected, and the stock drifted up during the quarter to close at $6.80 in front of the Q4 release. With the Q4 report greatly exceeding expectations, this is likely to leave the shorts in panic mode, as their thesis is dead in the water.

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Sizmek Q3 Report Illustrates A Deep Value Opportunity With Long-Term Visibility


  • FY2014 EBITDA guidance is virtually unchanged at $21M-$23M vs. earlier $21M-26M guidance which demonstrates greater-than-expected operating efficiency off a lower but still growing revenue base.
  • The decline in the legacy-rich media business is overshadowed by rapid 30% quarterly growth in the core business that exceeded expectations and provides clear long-term visibility.
  • $15M share repurchase program to commence early next week along with a potential new authorized share buy back that is currently in active discussion with the board and management.
  • Recent sale of Sapient to Publicis for an overall comparable ad tech business was at a multiple 5x richer than Sizmek’s current valuation, leaving room for significant upside.
  • New 8-K filing allows for third-party director compensation. This almost always precedes significant shareholder activism as the board members can be tied to short-term share price gains.

Without much fanfare and most ad tech eyes on high flying TubeMogul (NASDAQ:TUBE), Sizmek (NASDAQ:SZMK) released its Q3 earnings report on Thursday after the bell. A short but informative 22-minute conference call followed which was capped off by the 10-Q released a few minutes after the end of the call. Now we have all the information we need to make an informed decision. Let’s break it all down.

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Sizmek: The Profitable Ad Tech Company That Nobody Is Talking About

Seeking Alpha PRO TOP IDEA


  • 65% gross margin tech revenue with no media risk make for a compelling business model.
  • Increased sales and operating leverage reflected in rapidly expanding EBITDA margins.
  • Fascinating backstory with major shareholder all but guarantees positive long-term outcome.
  • Uniquely positioned with access to an unprecedented amount of the most valuable data.
  • The only true full stack independent competitor to Google’s Doubleclick ad management platform.

When it was announced that Alliance Data (NYSE:ADS) would buy Conversant (NASDAQ:CNVR), traders seemed confused. Frantically trying to figure out the closest competitor of the acquired company to bid up, somehow they arrived at Rocket Fuel (NASDAQ:FUEL). A burst of trading sent Rocket Fuel shares up as much as 20% on this news. The stock that should have moved up and can be more closely compared to Conversant is a little known but major player called Sizmek (NASDAQ:SZMK).

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Brightcove Is A Pure Play On The Rapid Secular Growth Of Online Video


  • After lowering revenue guidance due to customer loss, BCOV fell 50% and trades at a now cheap 1.4x EV/sales with Q2 margins over 66% and steadily rising.
  • BCOV loses customer Rovio, which was a high volume but low margin non-premium user of BCOV content delivery services. Not a long-term fundamental negative for the business.
  • Attractive acquisition target as a fully integrated SaaS offering without its own low margin CDN. For instance, Amazon’s AWS could purchase BCOV as a bolt-on suite to compete with Akamai.
  • BCOV is the strategic leader in the fast growing online video platform market. Technologically inferior competitor Ooyala was recently bought for 5x sales by Telstra.

I’ve written a number of times recently about the rapid secular growth in online video, but always from an ad tech standpoint. That is, the strong trend of TV brand advertising dollars inevitably moving to online video. Most recently, I wrote about my favorite play to take advantage of this fundamental shift in advertising spending. That being an online video advertising company called YuMe (NYSE:YUME). Now one of YuMe’s key technology partners is Brightcove (NASDAQ:BCOV) – the leading cloud based solution for delivering and monetizing video across connected devices. In layman’s terms, Brightcove is an online video platform (OVP), not much different than YouTube, but focused on the enterprise market. With the Q1 acquisition of ad-sticher Unicorn Media, Brightcove has accentuated its focus more on the more lucrative and higher margin business of cloud video monetization rather than low margin commoditized business of content delivery and streaming.

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ReachLocal Is A Compelling Turnaround Story In The Works


  • New CEO Sharon Rowlands has a proven history of execution and delivering results, particularly in sales driven organizations like ReachLocal. She also recently bought $500,000 worth of shares.
  • Trades at about 0.25x sales ex-cash with no debt and long-term profitability projected to occur by the back half of 2015 according to the new CEO’s turnaround plan.
  • The new ReachEdge product and SaaS marketing suite have been well received by SMB clients and is on the forefront of web development technology for small and medium businesses.

After pricing its IPO at $13 only 4 years ago, ReachLocal (NASDAQ:RLOC) has been trading in the $5s for the better part of this month. The company operates in the much hated although rapidly growing SMB marketing industry. It has competition like Constant Contact (NASDAQ:CTCT), Vocus and Yodle – an upcoming IPO that will draw attention to the space. Vocus recently got bought out by a private equity group led by its management at a huge premium. This was another company that investors avoided like the plague only to be kicking themselves later for not taking advantage of what was obvious public market mispricing. These companies all compete in the marketing of products geared towards small and medium sized businesses. ReachLocal most specifically operates in the premium SMB niche and offers an incredibly comprehensive advertising platform with a sales volume so high that I was more than a little shocked at how much of a discount to market that this company is trading at.

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Independent Ad Tech Opportunities With Extremely Negative Market Sentiment


  • Following Q2 earnings, most independent ad tech companies sold off sharply.
  • The market fears that competition from Tier 1 players cannot be overcome.
  • This results in some pretty remarkable valuations for contrarian investors.

In this article, I’m simply going to list some facts surrounding the shares of different players in the ad tech space that have been hammered lately and are sitting at historic lows. The facts are positive and negative. Investors can decide which way they want to play this opportunity, if at all. Most have chosen the sidelines, as none of the companies that I will discuss have extraordinary short positions, despite what the current extreme negative market sentiment would suggest.

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Article covers Millennial Media, Tremor Video, YuMe and Marin Software

Ctrip Priced At Greater Than Perfect In An Inherently Risky Chinese Market


  • Q2 earnings were disastrous and solidify the bear thesis of lack of scalability predicated by declining profitability despite strong sales growth.
  • Given the recent extreme margin declines exposed in the Q2 report, the stock should be re-rated lower as growth comes at a very high cost and is unsustainable.
  • Recent deal with Priceline was initially received very well by the market and took the stock to new highs, but the inability to hold the gains signals a top.

On July 30 Ctrip (NASDAQ:CTRPreported Q2 earnings which demonstrated a YOY operating margin decline of a whopping 1100 basis points to a measly 5%. Even worse, operating income was down 54% compared to the same period last year. The stock now trades at a forward PE of about 100. And that is using favorable analyst estimates. During the Q2 call, management insisted that the earnings and margin weakness is simply a blip as the company pursues breakneck growth. While sales are up an impressive 38% YOY, marketing spend was up 77%. So clearly we know that if you spend more money on advertising you will make more sales, but if you spend so much that you are not seeing a viable return on the incremental spend, then the model must be deemed unsustainable. That is where Ctrip is right now, overpaying for growth.

Management says that it is “achievable” to get to the 20%-30% operating margins that it would need to sustain its valuation. Let’s take the 20% lower end of that range as 30% is just pie in the sky and let’s use the FY2014 revenue estimate of $1.18B. A 20% operating margin would give Ctrip $236M in operating income this year. With the tax rate at 32% this quarter, that would leave roughly $160M in net income. At the current market valuation of the company of $8.92B, this would return a PE of about 56. Unfortunately for Ctrip, its operating margin is only 5%. I don’t see any way it can get to 20% and even if it does, it will still be overvalued by all conventional metrics. This does not even include the inherent risk of investing in a Chinese company, as that should discount the valuation further.

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Ignore the noise, it is the metrics that matter with Marin Software


  • Marin reports record Q2 revenues beating on the top and bottom lines and adding a near record number of new customers for the quarter.
  • Despite a $1.5M full-year revenue guide down, all operating metrics have improved considerably including a YOY gross margin increase to 66% from 61%.
  • The small guide down is an isolated event caused by a key staffing change and acquisition integration which allows investors the opportunity to buy in at historic lows.

marin softwareOn Wednesday after the bell, Marin Software (NYSE:MRIN) posted its Q2report which nailed almost everything other than a slight $1.5M revenue guide down of the core business for FY2014, when taking in to account the expected $2M 2H14 contribution in sales from the recent Perfect Audience acquisition. While this is a little disappointing, it really does not warrant a sell-off, especially one of epic proportions. This is especially true given the extremely strong operational metrics that were illustrated in the report.

There really was so much happening behind the scenes at Marin during Q2. Starting with the departure of the sales manager during the quarter to the new CEO taking over the reins, and finishing with the acquisition and integration of Perfect Audience. It was really the perfect storm of events that led to the company effectively dropping the ball on sales execution. As the CEO explained on the call, the deals are still in the channel, just extended out due to poor sales execution. However, this softness is not likely to repeat and ultimately with rapidly growing ad tech companies it is the metrics that matter and these prove that the business fundamentals are as strong as ever.

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Get long Jive Software at these historic lows and double your money


  • Jive Software hit new lows on Friday following a poorly received Q2 earnings report. The stock traded to new historic lows.
  • Credible sources maintain that Jive is for sale. The new partnership with Cisco is said to be a potential catalyst toward an acquisition.
  • Recent heavy insider buying coupled with large new hedge fund stakes indicates that the smart money is making a big bet on the potential upside.
  • Absent of any deal, the company on its own offers a very good value proposition trading at only 2x sales ex-cash with strong revenue growth and other metrics improving.

jive softwareJive Software (NASDAQ:JIVE) has been pretty depressing to follow over the past few years. After surging on the day of its IPO after pricing well above expectations, the stock took a beeline to nearly $30 in early 2012 before closing below $7 on Friday. What was a well played IPO has turned into an unmitigated disaster for early investors. This was accentuated following a cut in billings guidance that sent the stock spiralling down to new historic lows. As a strategic opportunist who has been following Jive for years, finally I was ready to dip my toes in the water.

Everybody knows that I love the busted IPO story. Often public investors can even get a better deal than early venture capital backers, while taking only a fraction of the risk. One of the advantages of having a wildly successful IPO is the mountains of cash that are raised. For this reason Jive has a pristinebalance sheet and combined with only a very modest cash burn it has bought itself several years to grow the business and seek a suitor without having to worry about dilutive fund raising or needing to take on debt.

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Is Cheniere Energy headed back to penny stock status? I break down the hype of this insanely overbought NG speculator.


  • Cheniere Energy is trading at record highs following a multi-year run based on optimistic future expectations.
  • Investment in the company is simply a highly leveraged and dangerous arbitrage bet on natural gas prices that can easily go the other way.
  • Even if the bet works out and everything goes exactly as planned by the company, the valuation still isn’t anywhere close to justified.

I started watching Cheniere Energy (NYSEMKT:LNG) in 2008 when it fell from $40 to $2. Since that time, it has rebounded over the past 4 years to a new high of over $76, where I decided to finally get short. Although I’ve followed the LNG story unfold for the past several years, I have admittedly never made a move on it and missed out riding the wave of hype in to the stratosphere.

LNG refers to liquified natural gas. Exactly as its name suggests, it is natural gas that has been converted to liquid form for transport. It is cost efficient to transport over long distances due to its reduction in volume. Therefore in countries like Japan, where natural gas trades at a sharp premium to domestic prices, the market expects there to be an opportunity to reap huge profits through export. That is pretty much the only use for LNG however, as it is not efficient for use in natural gas vehicles as the cryogenic storage requirements are too costly. Vehicles instead use compressed natural gas [CNG]. So there is no domestic market for LNG.

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