Accounting standards are hiding the fact that a small company, IZEA (OTC: IZEA), has booked more orders in 2013 than its current market capitalization. This remarkable opportunity for investors will exist for only a short time until awareness spreads about this topsy-turvy situation and IZEA's stock price rallies.
In the first 5 months of the year, IZEA's "net bookings" totaled $2.8 million. These year-to-date (YTD) bookings exceed the company's current market capitalization of $1.9 million and annualize to $6.7 million for 2013. Although IZEA still carries debt on its books, IZEA's gross profit margins in 2012 were 57% and revenue growth will soon eclipse operational expenses.
The primary reason that few people know about this opportunity to buy a company trading for fractions of its annual revenue is because IZEA is constrained by U.S. accounting standards. Regulators do not allow the reporting of "revenue" on income statements that is not realized or immediately realizable, and IZEA's advertising campaign bookings are confirmed yet unpaid orders. A typical advertising contract might be signed in June but not completed (and paid) until September. In this example, IZEA could not officially report this as revenue until September, yet if the client was reliable, IZEA had known this money was arriving since June.
IZEA's bookings are typically paid within 90 days. As a public company, of course, IZEA follows U.S. accounting standards and only reports revenue when it is actually realized. IZEA's revenue for the first quarter of 2013 was just a few hundred thousand dollars, yet it booked $2.8 million in orders; that money will arrive within 90 days. IZEA is attempting to be as forthright as possible by giving public notice of future, expected revenue in the form of its $2.8 million "bookings" figure.
Why does this matter? If IZEA maintains this pace for the full year, bookings in all of 2013 will total $6.7 million -- triple the company's $1.9 million market capitalization -- yielding an almost unheard of opportunity for stock market investors at IZEA's current price. More importantly, most of the world is not aware of this opportunity because IZEA's "bookings" do not display on any stock screeners or Yahoo Finance income statements.
Overview of IZEA
How does IZEA make money? In a word, IZEA is a middleman. It operates marketplaces where advertisers can pay celebrities and other influencers to tweet, blog, pin, vlog, or otherwise post content to their followers. Whenever an advertiser pays an influencer, IZEA takes a small cut. IZEA maintains three marketplaces: SponsoredTweets for tweets, SocialSpark for blogs, and Staree for pictures and video. Overall, IZEA's revenue has been growing consistently since 2009.
- 2009: $2.8 million with 52% gross profit margins
- 2010: $3.8 million with 52% gross profit margins
- 2011: $4.3 million with 55% gross profit margins
- 2012: $5.0 million with 57% gross profit margins
Like any tech company, profitability is not the immediate goal, and IZEA has been investing heavily into its platform in order to offer the best user experience possible. Larger profits will come once customers feel comfortable ramping up advertising campaigns from a few thousand to a few million dollars. Although the company could reign in expenses at any time and turn a profit, the goal is to continue growth. IZEA has registered 750,000 influencers like Kim Kardashian and facilitated 3.2 million advertisements for clients like Kia, Pepsi, Kraft, LG, Walgreens, AT&T, Allstate, Adobe, Unilever and Walmart. Hu Longmire of Dollar General explains, "The IZEA team and platform has allowed our brand to expand our reach and share our store's many savings with key influencers and their readers."
Social advertising is a growing field, with 64% of advertisers increasing their budgets for social media advertising in 2013. From $1.6 billion in 2012, BIA Kelsey estimates that native social media advertising (i.e. sponsored content, not traditional display ads) in the U.S. will reach $2.4 billion this year. By 2017, the research firm estimates that native social media advertising will outpace traditional ads and hit $4.6 billion.
For now, IZEA's market capitalization of just $1.9 million is just fractions of its annual revenue, and the company's undervaluation is even more pronounced when calculated from "bookings," rather than official "revenue" (lagging bookings by 90 days). The current stock price of IZEA is truly one of the only instances of such a steep discount occurring on any stock exchange.