Company Overview
Izea, Inc. (NASDAQ: IZEA) operates an online marketplace that matches marketers (brands, advertising agencies, and publishers) with creators of influential digital content. These ‘influencers’ distribute text, videos, and photos on behalf of marketers through various social media channels. The company’s platform brings these groups together, and facilitates large-scale transactions by managing content workflow, targeting, bidding, analytics, and payment processing.
Izea’s primary customers are marketers who wish to gain access to the company’s network of content creators. The company’s two primary approaches consist of influencer marketing, the engagement of various online figures to create lead marketing campaigns, and custom content, the creation of stand-alone content through client-owned channels.
The company was formed in 2006 under the name PayPerPost, Inc., and became a public company in May 2011. Izea is headquartered in Winter Park, Florida.
Products and Services
As noted above, Izea has two main product offerings:
Influencer Marketing: The company works with marketers to facilitate influencer campaigns at scale. Included in this category is Sponsored Social, which compensates bloggers and Twitter users for sharing sponsored content with their followers. Izea considers itself a pioneer in the marketplace for sponsorship on social media, and will continue to scale its product offerings in this space.
Custom Content: Izea also offers marketers the option to augment or replace existing content development efforts. The company’s platform connects customers to creators (such as journalists, subject matter experts, bloggers, and other digital content producers) in order to generate editorial and marketing content (ranging from complex white papers to simple product descriptions). Many customers use this service to update and maintain corporate blogs.
In order to connect its customers to its talent pool, Izea operates three distinct platforms:
IZEA.com and the Izea Exchange (IZEAx) was designed to provide a unified ecosystem for multiple types of custom content, including blog posts, status updates, videos, and photos shared through social channels such as Twitter, Facebook, Instagram, and Tumblr. The system is available to customers and partners using a self-serve portal.
Ebyline, which was acquired by the company in 2015, is a content marketplace that was originally designed to replace the editorial newsrooms of traditional newspapers. The primary focus of this platform is producing content for brands, in addition to the self-service functionality used by newspapers.
ZenContent, which was acquired by the company in 2016, is a platform that includes content creation workflow management and a database of creators, which enables scalable production of content for e-commerce entities and brand marketers. Whereas Ebyline uses expert-grade content producers, ZenContent relies on a wider array of creators to meet customer requirements for quality, speed, and price.
The company’s various platforms and product offerings are designed to meet the needs of different customers, ranging from start-ups to Fortune 500 companies. According to a recent presentation, Izea’s clients include the following well-known brands:
Source: Company Presentation
As of December 31, 2016, the IZEAx database was comprised of 810,000 user connections, with an aggregate reach of 4.7 billion non-unique fans and followers. Since inception, the company has completed more than 3.6 million social sponsorship transactions. A summary of Izea’s 2016 revenue is shown below:
Source: Company Filing
Market Overview
Studies performed by the company indicate that web-based marketing has gained significant momentum in the past year:
Source: Company Presentation
Conversely, traditional advertising channels such as television and print are increasingly seen as ineffective. The company also notes that more companies are creating large, dedicated budgets for influencer and content marketing, and it hopes to capture a greater share of this market going forward.
Third Quarter Earnings Review
Total revenue for the quarter ended September 30, 2017, increased nine percent year-over-year to $8.2 million. This improvement was attributable to organic growth of managed services revenue. Gross profit increased 23 percent as the company’s product mix shifted away from lower margin self-service content revenue.
Although total operating expenses were flat year-over-year, the company’s cash based operating expenses fell five percent to $4.2 million. Accordingly, Izea’s net loss for the third quarter was $0.6 million ($0.10 per share), as compared to a net loss of $1.5 million ($0.28 per share) in the third quarter of 2016. However, the company did record positive adjusted earnings before interest, taxes, depreciation, and amortization (of $0.2 million) for the first time since becoming a public company.
Net cash used in operations for the nine months ended September 30, 2017, declined 23 percent year-over-year to $3.2 million. At September 30, 2017, the company listed a cash balance of $3.4 million, with no long-term debt.
Izea subsequently updated its full-year outlook for 2017. The company expects revenue between $29 million and $30 million, compared to $27.3 million in 2016. Gross margin guidance increased by 200 basis points, and is likely to fall between 50 and 51 percent. Guidance for adjusted EBITDA improved by $1.0 million to a full-year total of negative $3 million.
Stock Influences
- Shifts away from print and television advertising towards digital solutions;
- Changes in the company’s revenue mix and improved profitability;
- Significant new customers and bookings; and
- M&A activity.
Risk Factors
- The social sponsorship landscape is subject to numerous changes that could cause the company’s revenue to decline;
- The company relies on third-party social platforms to deliver its marketing content, and changes in platform terms and costs could have a negative impact on the business;
- The company could be impacted by changes to net neutrality; and
- The company’s social sponsorship is subject to government regulation related to advertisers.
Stock Performance
On Monday, November 13th, 2017, shares of Izea were at $4.16, yielding a market capitalization of $25 million. The stock hit a one-year high of $7.85 in early October, but lost more than 50 percent throughout the rest of the month. The recent earnings announcement helped push the stock north of $4.00.
Following are selected analyst ratings and price targets:
| Analyst | Firm | Rating | Price Target | Date |
| Jon Hickman | Ladenburg | Buy | $10.00 | 11/8/2017 |
| Mike Malouf | Craig Hallum | Buy | $7.00 | 11/8/2017 |
Summary
Overall, Izea’s third quarter results were positive – growing revenue in high margin areas and improved profitability. Although the company reported a net loss, adjusted EBITDA was slightly positive. Izea’s operating cash flows remain negative however, and the company may need to raise additional cash within the next year. Still, the company boasts an impressive client roster, and the company’s platform is capable of servicing a variety of marketing needs. Accordingly, Izea appears well-positioned to participate in the growth of this nascent industry.
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