For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.
That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.
What Velti does
Velti is a mobile advertising solutions agency. Its products allow businesses to monitor and track targeted advertising in traditional print, radio, television, and outdoor advertising, as well as mobile applications, through its proprietary Velti mGage platform.
In Velti's most recent quarter, the company grew revenue by 75% to $51.8 million and reported an adjusted loss of $0.02 per share. Investors didn't seem very thrilled with the news, sending the stock markedly lower since those results.
Whom it competes against
With mobile advertising still in its infancy, Velti has both many and few competitors. Confused? Let me explain.
Google (Nasdaq: GOOG ) is the kingpin at the moment in mobile advertising, controlling about 95% of the search-ad market and 52% of all mobile advertising, according to my Foolish colleague Rich Duprey. Beyond Google, it's a disorganized mess! There are, however, plenty of other companies that want a piece of that action. Facebook (Nasdaq: FB ) , for instance, is attempting to figure out how to monetize its more than 100 million mobile-only users into a consistent revenue stream. So far we've seen plenty of promises, but few actual results from Facebook on that front. Somewhat similar to Velti, the market's punished Facebook accordingly for its lack of progress on the mobile advertising front.
A lot of Velti's future success rests on what happens in the smartphone and tablet market. With advertisers preparing to shift some of their budgets away from PCs and toward tablets and smartphones, watching what happens with dual players like Apple (Nasdaq: AAPL ) , which sold 26 million iPhones and 17 million iPads during its most recent quarter, and Microsoft (Nasdaq: MSFT ) , which has operating system contracts with Nokia's Lumia smartphones and has announced plans to introduce its own tablets, will be key.
After reviewing Velti's prospects, I've decided to side with 48 out of 56 CAPS members and enter a CAPScall of outperform.
It's safe to say that with Velti being cash flow negative at the moment, investors are worried about its expenses and cash burn. That's a viable concern given how much trouble high-profile companies like Facebook have had in monetizing their mobile treasure chest. But with few companies having an advantage and literally billions flowing toward mobile computing (smartphones and tablets), the market will be more than big enough to support Velti and many of its peers.
Also working in Velti's favor are the falling average selling prices of smartphones and tablets. It's a simple case of supply and demand here. As the markets begin getting saturated by these mobile devices, their prices should continue to fall. Falling ASPs for mobile devices will mean a wider income range of buyers and thus a wider target audience for advertisers.
If you want the skinny on the latest in-depth analysis of mobile-computing companies, including their pitfalls and opportunities, then you should grab your copy of our latest premium research reports on Apple, which you can access here, and Facebook, which you can access here. Both reports will offer you analysis from every angle as well as updates for one full year!