At 4pm on March 19, 2015, Izea Inc (OTCMKTS: IZEA) reported results from its final quarter of 2014. The company beat top and bottom line estimates, and within a few hours, it received an analyst BUY reiteration and price target raise. On a year-over-year basis ("YoY"), its registered user base grew 153%, revenue grew 26%, gross profit margin grew 56.5%, and booked orders grew 40%. With its ability to reach 2.3 billion followers –Â or one-third of the world –Â IZEA operates one of the world's largest advertising platforms.
The company forecast $23 million in revenue for 2015, 176% higher than last year's revenue. (IZEA's market capitalization is $20.2 million, or just 0.9X forward sales.) The company also has no debt and approximately $6 million in cash, which should be enough to fund operations through 2016. It is rare for a debt-free company that is one-third cash, employs almost 100 people, and consistently grows revenue at double-digit rates every quarter to attract such little attention among investors.
Guru spotlight
IZEA has received analyst coverage from several firms during the past year, including Craig-Hallum (rating: BUY, price target: $1), Merriman Capital (rating: BUY, price target: $0.60), SeeThruEquity (rating: BUY, price target: $0.80) and Zacks Investment Research.
Insider ownership at IZEA is also extremely high. As of March 12, 2015, institutional shareholders beneficially own approximately half of the company, and executive officers and directors beneficially own an additional quarter. Major shareholders include CEO Ted Murphy, John Pappajohn, Brian Brady, Nexstar (NXST, Financial) CEO Perry Sook and seven institutional LPs.
IZEA: A marketplace for buying "product placements" en masse
IZEA's business is simple: applying the commonplace concept of "product placement" to social media content. It has facilitated 3.3 million such "placements" to date. Similar to how Apple paid Warner Brothers to place the iPod within The Lego Movie, IZEA operates a marketplace wherein Apple can pay bloggers or tweeters to "place" its iPod within their personal social media streams. These creators earn cash compensation in exchange for posting. Advertisers benefit from buzz, traffic, awareness and sales.
Analysts at Zacks Investment Research explain IZEA's business: "It's a digital form of product placement and endorsement using social media. IZEA provides an automated online marketplace that connects brands with bloggers or tweeters who, in turn, incorporate the brand into their blogs, tweets, pins, posts and other content. Sponsorship advertising helps drive brand awareness so advertisers benefit from the buzz it generates. Content creators are compensated, enabling them to monetize their digital content."
The content marketing industry generates $44 billion in annual revenue, giving IZEA essentially limitless upside with generous room for competition. Its competitors include Ad.ly, Federated Media, TapInfluence, BlogHer, and Collective Bias. However, as IZEA's user base and revenues have grown to exceed these competitors by several orders of magnitude, IZEA is now competing directly for the native advertising dollars embedded inside billion-dollar social networks like Facebook (FB, Financial), Pinterest and Twitter (TWTR, Financial).
Management
CEO Ted Murphy founded and has led IZEA uninterrupted for approximately nine years. IZEA currently employs over 90 people full time. Murphy regularly appears on major media including CNBC, Bloomberg, Fox, CBS, E!, Wall Street Journal, Mashable, Fast Company, Investors Business Daily, Entrepreneur, AdWeek, Inc. Magazine and ABC.
IZEA completed a $12 million capital raise last year and sunsetted its legacy platforms, migrating all users to its modern, Cloud-based marketplace. "The investments we made last year have set the stage for a transformational year ahead for the company. We project 177% bookings growth in 2015," said CEO Ted Murphy. With all users now transitioned onto IZEA's new platform, the company will benefit from accelerated growth rates and reduced operational expenses in 2015.
Several analysts dialed in to IZEA's investor call following earnings on Thursday. Of particular interest, Murphy explained to them how the company's gross profit margin increased 21% YoY, "primarily attributable to an increase in advertisers using the company's managed campaign services and the related marketplace efficiencies that we derive from the execution of those campaigns." This ability to raise prices reflects the company's moat and customer loyalty rates.
Conclusion
Despite uninterrupted annual revenue growth since its IPO, a registered user base of 243,000 people, 65% gross margins, and more revenue this year than its current market capitalization per the CEO's forecast, IZEA appears to be under investors' radar. Note that the company's SEC filings include investment risks to consider, including its reliance on digital platforms, a competitive industry, fluctuations in social media ecosystems, regulatory uncertainty, and dependence on technical computer engineering talent.
