Inuvo Inc. (INUV:NYSE.American) drew the attention of Ladenburg Thalmann Analyst Jon Hickman, who initiated coverage on it with a Buy and a US$1 per share price target, he reported in an April 2 research note. The target implies a potential 194% return given Inuvo's US$0.34 share price.
Inuvo is a growing adtech and marketing company with a proprietary, artificial intelligence (AI)-driven, audience-targeting technology solution for digital advertising.
"Given the current size of the digital (web and mobile) ad market and the expected ongoing rapid growth, we believe Inuvo's novel, market-leading AI-based audience targeting solution positions the company for an extended period of notable top and bottom line growth," Hickman wrote.
The analyst reviewed the investment highlights.
Protecting Personal Data
Inuvo's approach is to target and advertise to audiences using artificial intelligence and no cookies or other personal information-collecting methods, and has developed a technology platform, IntentKey, to do this, Hickman explained. The technology creates highly targeted audience models by leveraging more than 25 million (25M) AI-identified concepts that represent why an audience visits certain URLs. As such, when a web user visits targeted web pages/URLs, an appropriate ad is delivered to that page. The AI platform is also able to identify the most effective media mix for the associated ad campaign.
The cookie-free environment is significant because an increasing focus is being placed on web-related privacy and personal security. For example, the web browser Siri no longer uses third-party cookies. Advertisers are looking to alternative technologies. Hickman reported that various industries are starting to allocate budgets to cookie-alternative advertising solutions, a 2023 eMarketer survey revealed.
Two Service Options
Recently, Hickman relayed, Inuvo launched a self-service option allowing advertisers to use IntentKey for generate target audiences for their unique brands and deliver tailored messages to them using their preferred media buying system(s). With the self-service option, Inuvo gets about 10% of the media buy, but due to few costs, gross margins with this option can be in the high 90% range.
With managed services, the other option for customers, Inuvo employees interface with the brand or agency to optimize a specific audience and place the ad content accordingly. Inuvo is paid a percentage of the media placement campaign, about 40%.
The company now divides its revenue into two separate categories, Agencies and Brands, and Platforms. The latter involves demand side platforms using the IntentKey software to help advertisers place their ads on the most advantageous web pages.
"We believe Inuvo is emerging as a very successful and differentiated participant in the current digital ad marketplace," wrote Hickman.
Inuvo has recently integrated the IntentKey AI into its Bonfire proprietary platform to find higher-value audiences. With Bonfire, users can set up, track, automate, optimize and report on media buys in various search, social and programmatic elements of the digital ad space.
Proven Success
The analyst pointed out that Inuvo has demonstrated repeatedly that IntentKey outperforms other targeted audience ad strategies by 67% on average.
Its direct competitors, according to management, are companies like TradeDesk, Criteo, AdTheorent, Basis, Cognitiv and Distillery. The main way Inuvo stands out is with its patented, proprietary technologies. Numerous of its abilities, most reliant on the intellectual property, serve as barriers to newcomers to the space. These include its proficiency in large-scale data center management, software development, data products, analytics, AI and ability to process tens of billions of transactions every day.
Large and Growing Market
Digital advertising is a significant, growing market. Hickman cited eMarketer stats, that this year, U.S. digital ad spend is expected to surpass US$290 billion (US$290B) and account for about 12% of the total media spend. According to Statista, Internet ad revenue worldwide is forecasted to approach US$660B in 2027, due mostly to growth in mobile campaigns and new social formats.
"In this very large market space, companies with leading, cookie-less technologies, such as Inuvo, can grow and take market share," wrote Hickman.
Business, Earnings Forecast
After it was founded, Inuvo had several business directions before developing and marketing IntentKey. Since this has become its primary focus, the company has become more consistent, noted Hickman. It is getting more industry exposure, its client base is expanding and revenue has grown and become more seasonably predictable. The platform now accounts for the majority of total revenue.
These trends are expected to continue, as well as Inuvo's ability to generate and grow consistent positive adjusted EBITDA. Ladenburg estimates that Inuvo will generate US$94.3 million (US$94.3M) in revenue this year, which will be a 27.5% year-over-year (YOY) increase, and US$115M in 2025, for 22% YOY growth.
The financial services firm expects that once Inuvo's annual revenue hits US$100M, total operating margins will start expanding, thereby allowing for consistent positive bottom line results. Accordingly, Ladenburg is modeling gross margin for 2025 in the low 80% range.
The Management Team
Management includes Richard K. Howe as chairman and chief executive officer. Howe has run small and large companies on three continents and has been involved in the purchase, merger, turnaround or sale of numerous companies valued at many hundreds of millions of dollars. Prior to joining Inuvo, he was chief marketing and mergers and acquisitions officer at Acxiom Corp., a marketing services firm.
Wallace D. Ruiz Sr. is Inuvo's chief financial officer (CFO). Prior to Inuvo, Ruiz held this position at various public and private companies in various industries, most recently SRI Surgical Express, a nationwide healthcare services provider.
Inuvo's president, Barry Lowenthal, has 35 years of experience in the advertising and media industry.
Stock Specifics
Hickman noted that Inuvo has 139.4M shares outstanding. Its market cap is US$47M. Its 52-week range is US$0.12–0.57 per share.
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Disclosures for Ladenburg Thalmann, Inuvo Inc., April 2, 2024
ANALYST CERTIFICATION I, Jon R. Hickman, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report, provided, however, that: The research analyst primarily responsible for the preparation of this research report has or will receive compensation based upon various factors, including the volume of trading at the firm in the subject security, as well as the firm’s total revenues, a portion of which is generated by investment banking activities. Additional information regarding the contents of this publication will be furnished upon request. Please contact Ladenburg Thalmann, Compliance Department, 640 Fifth Avenue, 4th floor, New York, New York 10019 (or call 212-409-2000) for any information regarding current disclosures, and where applicable, relevant price charts, in regard to companies that are the subject of this research report. COMPANY BACKGROUND With its current business model Inuvo is now a pure-play web/mobile marketing and advertising technology platform. Its platforms optimize the purchase and placement of digital advertising in real time and at scale primarily through the company's IntentKey platform. IntentKey is an artificial intelligence-based consumer intent recognition system providing highly-targeted digital audiences programmatically across the web. Inuvo also offers Bonfire, a marketing and advertising solution for brands to combine data, analytics, software and publishing to more effectively target ad content at consumers across the internet. The company was founded in 2001 with corporate headquarters in Little Rock, Arkansas. VALUATION METHODOLOGY Our valuation is based on a Price/Earnings ratio of 25X on our 2025 non-GAAP cash earnings per share estimate of $0.05 discounted back to the present at 25%. This calculation equates to a fair value of approximately $1.00. RISKS Inuvo, Inc. (including its predecessor companies) has been a public entity for more than two decades, but it has only been recently that the company has begun to generate sufficient revenues to approach GAAP profitable operations. In our opinion, the primary risks to our investment thesis lie in the company’s ability to grow its revenues inside a very competitive and technology-driven market space and to effectively promote its AI-based IntentKey audience-generating technology. Other risk factors to our investment thesis include, but are not limited to, the following: • Customer Concentration: Inuvo is reliant on three customers for a significant portion of its revenue. During 2023 these three customers accounted for 60.4%, 12.8%, and 5.7% of revenues, respectively. Historically, the company has been able to replace lost clients with new clients or by expanding relationships with existing clients. However, a significant decline in revenue from one or more of these customers would likely negatively impact the company’s revenue outlook and general business operations. • Competition: There are a growing number of competitors in the digital and mobile ad market. Many of these competitors are much larger, well-known entities and possess significantly greater financial, marketing, and technical resources. • Digital Devices: The company is dependent on the continued popularity and use of smart mobile devices for e-commerce. Any disruption in this current paradigm would likely hinder the company's future revenue growth and profitability. • Technology Advancement: Inuvo is dependent on its ability to stay current with the rapid pace of technological innovations in the digital/ mobile ad industry and provide its user base with relevant advertising technologies with attractive ROIs. • Key Employees: Inuvo’s future success is (in part) dependent on the efforts of its executive officers. The loss of one or more executive officers or failure to add key personnel, could slow the growth of the business or lead to the company becoming less competitive in the marketplace. • Governmental Regulation: The failure to comply with federal, state, and international privacy and data security laws and regulations, or the expansion of current or the enactment of new privacy and data security laws or regulations, could adversely affect Inuvo’s operations. The existing and soon-to-be enacted privacy and data security-related laws and regulations are evolving and subject to potentially differing interpretations. Any failure, or perceived failure, to comply with Federal Trade Commission requirements or orders or other federal, state, or international privacy or consumer protection-related laws, could result in claims, or actions against the company by governmental entities or others that could adversely affect Inuvo’s current and future business operations. • Fraudulent Traffic: The potential for publishers or others to fabricate clicks could materially harm the company’s reputation and revenue generation. Though the company has fraud detection software in place, click fraud is an issue, and a rise in this type of traffic could adversely affect revenue generation. • History of Losses: The company has had an uneven history of operating profits/losses and there are no assurances that the company will be able to consistently generate positive net income in future periods. Continued operating losses could negatively impact the share price and require the need for additional capital.
• Additional Equity Raises: The company may need to raise additional capital in the future which could result in significant equity dilution for the current shareholders and negatively impact the share price. STOCK RATING DEFINITIONS Buy: The stock’s return is expected to exceed 12.5% over the next twelve months. Neutral: The stock’s return is expected to be plus or minus 12.5% over the next twelve months. Sell: The stock’s return is expected to be negative 12.5% or more over the next twelve months. Investment Ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk, or a change in target price. At other times, the expected returns may fall outside of these ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review. RATINGS DISPERSION AND BANKING RELATIONSHIPS AS OF (April 2, 2024) Rating % IB % BUY 74.2 58.3 NEUTRAL 25.3 42.2 SELL 0.6 0.0 COMPANIES UNDER JON'S COVERAGE Blade Air Mobility, Inc. (BLDE) Byrna Technologies, Inc. (BYRN) Chicken Soup for the Soul Entertainment, Inc. (CSSE) IZEA, Inc. (IZEA) Paysign, Inc. (PAYS) SRAX, Inc. (SRAX) Usio, Inc. (USIO) Bridgeline Digital, Inc. (BLIN) Core Scientific, Inc. (CORZ) Inuvo, Inc. (INUV) LiveOne, Inc. (LVO) Synchronoss Technologies, Inc. (SNCR) SuRo Capital Corp. (SSSS) Energous Corporation (WATT) COMPANY SPECIFIC DISCLOSURES Ladenburg Thalmann & Co. Inc. expects to receive compensation for investment banking and/or advisory services from Inuvo, Inc. within the next 3 months. Ladenburg Thalmann & Co. Inc. intends to seek compensation for investment banking and/or advisory services from Inuvo, Inc. within the next 3 months. Ladenburg Thalmann & Co. Inc had an investment banking relationship with Inuvo, Inc. within the last 12 months. Ladenburg Thalmann & Co Inc. acted in an advisory capacity for Inuvo, Inc. in the last 12 months. The research analyst principally responsible for the preparation of this research report, or a member of their household, has a financial interest in the securities of Inuvo, Inc. in the form of a long position in common stock. INVESTMENT RATING AND PRICE TARGET HISTORY
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