With all of Velti's potential, leading market moving advantage in mobile advertising, ten year operating history, and what was a discounted valuation by Wall Street, I really thought I had a winner with this one. However, Velti reported a Q4 adjusted loss of $.39/share when analysts expected a profit of $.59/share. On the revenue side, they took in $97.5 million, and sales were expected to be $106.9 million.
Things don't look much better for next year as management concedes it will be a "transitional" period. They are projecting sales of $255-$280 million for 2013. Beforehand, it was $339 million. What really hurts your pocketbook if you are long Velti, is that they are in the advertising business, and most advertising budgets are solidified in the 4th quarter. If they don't execute a big fourth quarter, then it may be dead money for the next twelve months.
Two of the analysts that cover the company seem to concur with my assessment. Jefferies' Peter Misek lowered his price from $8 to $2.15, and sees going concerns with liquidity issues. In addition, Richard Fetyko of Janney Capital Markets cut his 12 month price target from $5 to $3. Stocks drop from 52 week high of $14 to $2 for a reason. Bankruptcy, creative accounting issues, reverse splits, or the pink sheets are always a possibility. These are not good things.
When you invest in any stock, you take a leap of faith that management is competent, but from investing in, and following the company for the past twelve months, it's quite obvious that CEO Alexander Moukas is way over his head. Mr. Moukas is a co-founder in the organization, and also Executive Director, plus Chairman of the Executive Committee. Way too many hats to be wearing for a NASDAQ traded security. I don't want to throw this guy under the bus, but DSO's (day sales outstanding) were 311. That's an increase from last quarter even as they divest themselves from a majority of their deadbeat clients, specifically in Greece and the Middle East.
Sometimes company founders aren't qualified to grow with an organization, and this may be the case with Moukas. After ten years in the industry, if you don't know how to run a business, it's time to step aside. Just look what happened with Groupon (GRPN) recently when they sacked their founder and CEO. In January, Moukas brought in Jeffrey Ross as CFO to turn things around, it just wasn't enough to keep me in the fold.
That said, I remain a big believer in the mobile space, and think there is large growth in smartphone and tablet advertising. I originally bought Velti because they are an international pure play in mobile marketing, and will consider replacing the stock with one of their competitors. If you prefer a larger play in mobile advertising, there are always the two conglomerates Google (GOOG) and Apple (AAPL). Both are excellent companies, but their mobile advertising networks are a small part of their overall revenue streams.
The two smaller pure plays I am aware of are Augme Technologies (AUGT.OB), an over the counter bulletin board company, and Millennial Media (MM). I'm not big on bulletin board stocks, so Augme is out of my wheelhouse. However, Millennial Media looks very interesting, although has been sinking like a rock. The 52 week high on the company is $28, the 52 week low is $8, right where it currently trades. Beware of the falling knife, if you'll pardon the cliché.
Millennial Media is losing money, but is projected to earn $.13/share for 2013, and $.36/share for the year after. Sales are slated to be in the 50% growth region for the next few years. For an interview with company CEO on CNBC's Mad Money, click here. However, they may be a victim of the advertising cycle just like Velti is. My impression is that the market rally may be slowing down, and that what is in motion, stays in motion. Millennial Media is definitely on the way down. My inclination is to wait, if indeed I want to put some money to work.