Werner MuehelemannZoomdZOMD.VCOMMENTMay 28, 2008

They do digital marketing. Have many blue chips customers like the NBA, helping them to strategize their ad buying. Their top 5 companies amount to 75% of their business. Grew revenue over 70% last year and 20% this year. High inside ownership. Caveats: are in a cyclical business (ad tech) and their disclosures could be better. Holds a small position.

EPS of $0.097 met expectations and sales of $24.93M also met expectations. Sales for the quarter declined about 3% for the same period in the prior year, but for the first nine months of the years sales are up 37%. Gross profits grew in the quarter, operating margins expanded to 23.1% from 19.4%, and net profits grew 20% year-over-year. Cash from operations was $5.4M, and ZOMD added 10 new clients (iGaming, fintech, e-commerce), expanded its presence in North America and Europe, and completed a strategic partnership with E2. Sales in the quarter declined due to a one-time revenue benefit in the prior-year period from the Euro Cup tournament. 

Even though sales slightly declined for the quarter, costs of revenues and operating expenses both declined for the quarter, and this led to an improvement in earnings for the quarter. The single-day reaction is large, but we have seen this with small-caps before. It has virtually no debt, it generates good free cash flow, a healthy balance sheet, and due to its small size ($150M market cap), we think that volatility is to be expected, particularly with a low volume name. Operationally it was a strong quarter, despite the sales decline, but it is still growing and analysts expect 20%+ sales growth in the coming years. We would be fine holding here. 
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ZOMD has done very well, but remains cheap on a P/E basis. It has $22M cash, revenue and earnings are rising nicely, and momentum is solid. EPS is going from 11c last year, to 36c this year and 43c (est) next year. Still only one analyst follows the company. Insiders own 27% but there has been some minor selling this year. It reports on Friday. Its size adds some risk, but otherwise it looks quite solid to us overall. 
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Sales rose 40% to $19.6M. EBITDA rose 80% to $5.6M. Net income was $6.1M vs $3.9M last year. Cash flow was $5.2M, with cash at $16.5M. North America and Europe were highlight areas. Costs rose slower than sales so margins improved. We would consider these results very good and with the gain in market cap and valuation we can see why the stock is doing very well this year.
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Sales rose 40% to $19.6M. EBITDA rose 80% to $5.6M. Net income was $6.1M vs $3.9M last year. Cash flow was $5.2M, with cash at $16.5M. North America and Europe were highlight areas. Costs rose slower than sales so margins improved. We would consider these results very good and with the gain in market cap and valuation we can see why the stock is doing very well this year.
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