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Imagine My Surprise; Interclick (ICLK); Roaring Into Online Advertising

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Imagine My Surprise

Imagine my surprise on Friday morning when I brewed my first cup of java at 6AM, fed our ever faithful labradoodle Ben who's far more intelligent than I am, and turned on the TV to watch the markets open. 

Ringing the opening bell in celebration of their 10th anniversary of trading on their respective exchanges were UPS (NYSE: UPS) at the NYSE, and NetSol International (NASDAQ: NTWK) on NASDAQ. I have stories related to both.

My UPS story is brief. About 4 months after the company went public, my UPS guy should up at my house in a brand new Mercedes E350, at which point we went out for a round of golf. He'd cashed in some stock options and bought the car- after 10 years of busting his behind for the company, it was richly deserved. Being a public company made this possible.

NetSol International (NTWK) was a bit more nostalgic for me. Between the fall of '98 and March of 2000, NTWK turned into the biggest gainer I've ever featured. This was a shell company on the bulletin board formed to acquire private companies in Pakistan. This was back when offshore software development was getting big.  It started out as Mirage Holdings in the clothing import business, and turned into a technology company when the entity bought NetSol. At the time, NTWK was a low cost, off shore software developer- they created all the software for Mercedes Benz leasing worldwide, and were starting to generate some decent numbers.

Here's the facts- I started with this one in the Fall of '98 at $3.50. In early '99 the stock had fallen to a low of $1.62, and then over the course of the next 13 months the stock traded to a high of $90 per share. Yes, that's a return of 3429% on invested capital from top to bottom. I was a hero temporarily, and received emails from subscribers who had taken their new found fortunes to buy BMWs or take exotic vacations.

Then March of 2000 hit, and the party ended rather abruptly. NTWK had no fundamental business trading anywhere near $90- it inflated with the biggest tech bubble in history. It was sure fun to watch it happen.

I haven't followed them in years. Apparently, the did a 5 for 1 reverse split, so the numbers on this chart are split adjusted. Making the jump from the BB to the NASDAQ was big for this idea, and helped it attain the moon shot move. 

Today, I'm going to present a company that just made a similar move- BB to NASDAQ, and the institutional sponsorship is growing simply because this company has the highest growth rate in its industry group. It's likely a double from today's levels over time. Read on:
 

Interclick Inc (NASDAQ: ICLK): Roaring Into Online Advertising

In the last two weeks ICLK has delivered three remarkable achievements: 

  • ICLK reported its first profitable quarter on 150% top line growth and 315% gross margin growth- revenues are growing dramatically, but more importantly the margins on those revenues are growing twice as fast.
  • ICLK completed a 2 for 1 reverse split in order to meet the minimum price requirement to move from the BB to NASDAQ
  • ICLK jumped from the BB to the NASDAQ.

In case you haven't guessed by the name, ICLK is an internet advertising solutions provider with the most laser targeted technology available to advertisers on planet earth today.

Most ad networks operate as media companies. They emphasize and beef up their sales organizations, but tend to ignore the technology side of the business.

ICLK is now the fastest growing pub co in the space for one simple reason- they have focused on developing their technology- their unique advertising platform. It has properties no one else offers. 

Their platform identifies ad inventories available on web sites and in real time matches the advertiser and to the audience; thereby optimizing the dollars spent by the advertisers, and providing the best ROI for the dollars spent.

Hence, the majority of advertisers who contributed to ICLK's $14.4 million Q3 are Fortune 500 companies. ICLK focuses on display ads, which represented $4.9 billion of the $23.5 billion spent on internet advertising in '08.

Analyst Richard Fetyko of Merriman, Curhan, Ford believes ICLK's model is highly scalable, and should allow the company to cross the $100 million top line barrier in 2011. He projects ICLK will deliver $76.4 million in '10, up from $46.6 million in '09. Watch both of these numbers come in on the low side. He projected $12.6 million for Q3, and the company delivered $14.4 million- a 14% miss on the low side.

The stock closed at $5.69 on Friday, and I believe it is destined for $10 in the next 6 to 18 months. However, that's not the real upside here. 

ICLK is a bit smaller than the Value Clicks and 24/7's in the online internet ad space, but it is by far the fastest growing, and offers big budget advertisers an opportunity to get a better ROI on the ad dollars using disruptive technology.

Advertising.com was bought out by AOL. BlueLithium was bought out by Yahoo!. WPP bought out 24/7 Real Media. Value Click bought FastClick. This is a consolidation happy space, and when you're bigger than someone with better technology, you buy them out. It's been happening for years, and the buyouts are always at huge premiums.

The 2 for 1 reverse ICLK did on Oct 27th allowed the company to jump to NASDAQ in just a few trading days as the minimum $4 market price was achieved. Since then, the stock has been in a nice uptrend, suggesting that all reverse splits are not created equal. 

As of the last quarterly filing, there were about 42 million I&O, so now there's about 21 million post reverse. Fetyko has the company delivering $.28 in EPS in '10, but we've already seen him fall 14% short. Perhaps a real number is closer to $.32 in EPS next year.

ICLK boasts the highest growth amongst its peers in 2009- Looking at GOOG (13%)- KNOT (-9%), VCLK (-6%), YHOO (-25%), and a number of others, ICLK will likely deliver 182% growth in '09- no wonder the stock is trading really well.

If you like this idea, here's why you need to act now. Gen 6 is coming this quarter.

ICLK has pre announced it will be introducing it's Generation 6 platform sometime in Q4- and we're nearly half way through Q4. Both customers and the market have been led to believe Gen 6 will be really disruptive, and is the kind of catalytic event that could send the stock careening up the charts.

Whether it's a buy out, the introduction of Gen 6, or just plain great operational numbers, ICLK looks like it wants to go higher. It has stair stepped its way up this year. All five one month bases have been resolved with a nice move to the upside.

I'd have no trouble holding this one down to $5, so there's your SSL (suggested stop loss). If we get down that low, and its a low volume pullback in a down market, no need to panic. Better to think in terms of accumulating.

I like this stock for $10 in 2010. Fetyko's initial target is $8. Own it before they show off Gen 6, which I only know is expected to be sometime in Q4. That's sometime in the next 6 weeks. I like their strategy on their Gen 6 version unveiling -they've waited until they were on NASDAQ and announced their first profitable quarter. There will be more eyeballs on this company than ever before. 

If you think this idea has run its course, consider NTWK at $5.69- it found its way to $90. A repeat of NTWK 10 years later? I'm not quite that optimistic, but you never know.

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