ReachLocal Is A Compelling Turnaround Story In The Works

Summary

  • 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

Summary

  • 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.

CLICK HERE to read the full article exclusively at Seeking Alpha.

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

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

Summary

  • 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

Summary

  • 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

Summary

  • 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.

CLICK HERE to read the full article exclusively at Seeking Alpha.

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

Summary

  • 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.

CLICK HERE to read the full article exclusively at Seeking Alpha.

Facebook is a SHORT despite what the fanboys would like you to believe!

 Summary

  • Suddenly nearly everybody is bullish at historic highs. Where were they at the post-IPO lows?
  • Facebook is priced for beyond perfection at 94 times earnings and 24 times sales.
  • Original VC Peter Thiel cashes out his remaining 494,950 shares on July 29, signaling a smart money top.

facebookThere have been so many ridiculously bullish articles on Facebook (NASDAQ:FB) lately that I don’t even know where to start. We have Alex Cho comparing Facebook to Google (NASDAQ:GOOG), something that sounds great on paper but is baffling to anybody who works in computer science. Markos Kaminis calls it a “bargain” on a PEG value basis, a calculation only a diehard idealist could fathom. Jefferey Himelson has written 8 bullish Facebook articles since July 1. His most recent one talks about the great opportunities for Facebook in Africa, the poorest region on Earth. Sramana Mitra writes that “Nothing Can Stop Facebook Now” in an article that cites a number of prevailing digital trends and Facebook’s exposure to these in order to conclude that it must be a great investment. Seeking Profits suggests that Facebook should be trading at 40 times FY2015 earnings, which is an unusual way to value a stock halfway through 2014. The Value Investor acknowledgesthat Facebook’s valuation is “astonishingly expensive” but goes on to write a very optimistic piece saying one only needs “imagination” to justify the current price.

CLICK HERE to read the full article exclusively at Seeking Alpha.

 

Buy ITT Educational Services as the fears are GREATLY overblown

Summary

  • ITT Educational Services stock finishes down over 46% on Monday.
  • The drop is caused by an August 1 filing that indicated that a $119M property leaseback deal has been cancelled.
  • ITT rejected an extension of the due diligence period in order to entertain other potential buyers.
  • The market treated the news by subtracting $155M off of ITT’s valuation, essentially saying that the property it owns is now worth less than zero from $119M on Friday.

On May 21 with ITT Educational Services (NYSE:ESI) stock trading at $25, Nick Mulcahy wrote a bullish article. As the stock closed today at only $7.71 clearly he was quite early on his call. However, his points are still valid, both the negative and positive. Yet the stock is down 70% from when he made the call to buy. Not much has really changed. We have already seen the bearish arguments and know that enrollment is down and we know that the company faces increased regulatory scrutiny. This is why the stock was trading at just over $14 on Friday from Mulcahy’s $25 entry in May.

CLICK HERE to read the full article exclusively at Seeking Alpha.

Bullish on Skullcandy following Q2 earnings beat

NEWSLETTER SUBSCRIBERS were alerted to this earnings play on Thursday afternoon. We went long and cashed a quick 15% gain off the beat!

Summary

  • Skullcandy reported Q2 earnings of $0.06 EPS, which significantly exceeded consensus. All other relevant metrics improved along with FY2014 EPS guidance.
  • I am updating my outlook on Skullcandy to confirm that the turnaround is indeed on track and my new 2014 price target is $9.
  • This EPS beat and FY2014 guidance raise was anticipated as I took a long position in Skullcandy right before the close, as evidenced by my Twitter posting.

CLICK HERE to read the full update exclusively at Seeking Alpha.

RealNetworks Q2 is just as bad as I expected

Summary

  • Reports Q2 revenues of $40.8M compared to $49.9M in the same period last year. Net loss accelerated to $21M in the quarter compared to $18.5M in Q2 2013.
  • This confirms my short thesis from July 21 as losses and sales declines not only continue by they are increasing rapidly with no end in sight.
  • Cash burn looks to be an around $60M in 2014 as I anticipated, in line with my projections of running out of cash in the next 3 years.

CLICK HERE to read my full earnings update exclusively at Seeking Alpha.