TPS Position Update – May 4, 2016
. . . . Inuvo (AMEX: INUV) – SELL
We recommended Inuvo in June 2015 at $1.43. Now it’s at $1.88 after running up as high as $3.50.
The firm reported solid Q1 earnings late last month. Revenue for the quarter was $18.7 million, a 40% increase year-over-year.
Net income was down from $626 thousand to $374 thousand. At first glance, not good. But last year’s Q1 revenue included a $406 thousand tax benefit. Carve that out and income is actually up 43%.
Inuvo is in the digital advertising business. It sells advertising on two separate networks, the Partner Network and the Owned and Operated Network.
For the Partner Network, Inuvo sells ads that run on other firms’ websites and applications. The Owned and Operated Network of apps and sites is run by Inuvo. Each network uses Inuvo’s ad delivery software.
What lies ahead? We see trouble because of an uncertain revenue outlook.
The online ad business is highly competitive, price driven, and threatened by the increasing use of ad blocking.
We do not see a significant change ahead. Facebook and Google continue to dominate ad sales. The pricing pressures are probably not about to get any better and Inuvo’s partnerships with ad networks, such as Yahoo!, are less appealing today than they were a few years ago.
This is a good time to take your profits.
. . . . The McClatchy Co. (NYSE: MNI) – Hold
We recommended McClatchy in August 2015 at $0.96.
Today the stock closed at $1.09.
A few weeks ago, when quarterly earnings were released, the company reported a Q1 loss of $12.7 million. Revenue came in at $238 million.
McClatchy makes money from newspaper subscriptions and advertising.
Total ad revenue for Q1 was about $136 million, down close to 10% from 2015. Print ad revenue was off $96 million, down close to 15%, and digital revenue was up 18.0%.
On the balance sheet, cash expenses were cut by 7.7%, $30.8 million of debt was paid down, and 3.3 million shares of Class A Common stock were bought back.
To try and strengthen its financial position, McClatchy is planning to enter into potential leaseback deals for three of its real estate properties in Sacramento, Kansas City, and Columbia, S.C.
McClatchy owns more than 20 daily newspapers, including the Kansas City Star and the Sacramento Bee.
The newspaper business isn’t for the faint of heart. Just ask Warren Buffet.
Berkshire Hathaway owns two newspaper stocks.
Graham Holdings $GHC is down 24% over the past year and Lee Enterprises $LEE is down 30%.
Action To Take
- SELL Inuvo (AMEX: INUV)
- Hold McClatchy Co. (NYSE: MNI)
Category: TPS Update
