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Get Four
|  | JANUARY 6, 2006
By Alex Halperin Miva: Rising from the Depths?After a string of legal and financial setbacks in 2005, the online ad network's outlook -- and stock price -- is finally improvingOnline ad network Miva's (MIVA ) stock had a nightmarish 2005, but the Fort Myers (Fla.)-based company may be better positioned now than its performance suggests. In the first half of 2005, a crush of bad news sent the stock price reeling. It has recovered a bit since then, but not enough to save it from the cellar of the S&P 1500 Composite index. In 2005, Miva had the worst percentage performance in the broad stock-market gauge, plunging 72%, from $17.73, to close the year at $4.95. That was quite a comedown. Based on five-year revenue growth through 2004, tech consultancy Deloitte ranked Miva No. 46 on its 2005 list of the 500 fastest-growing technology companies in North America. FINANCIAL FALLOUT. Miva, which changed its name from FindWhat.com in June, connects advertisers with content Web sites, such as search engines. It sells advertisers targeted text ads that appear in response to user-entered keywords. Advertisers pay based on how often users click on their offerings. As Google (GOOG ) and others have shown, this can be phenomenally profitable. So what went wrong with Miva? Lots. The company, which declined to comment for this article, began last year with a potentially crippling patent dispute with Yahoo! (YHOO ) subsidiary Overture looming. Then, following first-quarter results, the Miva's auditor, Ernst & Young, abruptly left. At the time, Miva told the U.S. Securities & Exchange Commission that it disagreed with E&Y regarding the need to recognize an impairment of goodwill in connection with Miva's 2004 financial statements. Days later, alarm bells clanged louder, with the resignation of Chief Financial Officer Brenda Agius. After the announcement, the stock hit its 52-week low of $4.07. (Attempts to reach Agius were unsuccessful.) SPYWARE ATTACK. As if this weren't enough, more trouble was on the horizon. New York Attorney General Eliot Spitzer said in April that he was suing Intermix, the owner of MySpace.com, which was subsequently acquired by Rupert Murdoch's News Corp. (NWS ), for distributing spyware onto personal computers. Spitzer's move may have had a knock-on effect for Miva's stock. It's very difficult for an ad network -- and even more difficult for its observers or investors -- to be completely assured that its partners aren't associated with groups involved in spyware. "Everyone went 'uh-oh, the industry is going to be under attack,'" says Colin Gillis, an analyst with Canaccord Adams, which makes a market for Miva. A source close to Miva says the company began disassociating itself from online gambling outfits, due in part to their involvement in spyware, in the fourth quarter of 2004, a move that appears to have hurt 2005 revenues. According to Miva, the number of its ads that got clicked fell to 206 million in the third quarter of 2005 from 251 million in the fourth quarter of 2004. SETTLING DOWN. By June, in need of a change, it took the name Miva, after a small company it acquired in 2004. It also adopted a new logo, combining an arrow and an infinity sign that it uses as the "a" in its name. Credit the optimistic symbol if you like, because by then the worst of the Miva's year was over. In July, Miva hired a new auditor and filled the CFO post with William Seippel, who previously held the position at wireless-communications outfit AirGate PCS, now a unit of Sprint Nextel (S ). These moves "helped lift the concern that the books were being cooked," Gillis says. The reassurance spurred Gillis, who at the time worked for brokerage Adams Harkness (later acquired by Canaccord Capital), to upgrade the stock to a buy rating with an $8 target price. In November, he reduced the target price to $7, but kept the buy rating. The other problems eased as well. Intermix settled with Spitzer by paying $7.5 million and agreeing to permanently stop distributing its adware, redirect, and toolbar software. And Miva agreed to pay a onetime settlement of $8 million, plus royalty fees, to Overture. The payment, Gillis says, alleviated lingering concerns over whether Miva could be a viable business. Still, the year hadn't been easy, and third-quarter 2005 revenues were $44.7 million, down from the same period in 2004. TAKEOVER TARGET? To some extent, the stock price has reflected Miva's tentative optimism. It closed on Jan. 5 at $5.07, up almost 25% from its May low. While it's unlikely that Miva's fledgling recovery has Google shaking, the outfit could fill a niche market. Unlike many ad networks, Miva doesn't have a portal Web site of its own, so it's not competing with those sites that run the ads it supplies. Prospects for the sector still appear bright, though analysts see the pay-per-click advertising sector's growth slowing to between 20% and 40% in 2006 (see BW Online, 1/4/06, "Google: $600 or Bust?"). Despite the havoc of 2005, Miva had almost $42 million in cash, equivalents, and short-term investments at the end of the third quarter, and only about $3 million in long-term debt and liabilities. Combine that with a large presence in Europe and its current stock price and, Gillis suggests, Miva could be ripe for an acquisition. Potential buyers may include Yahoo, for which it would be an "attractive takeout play," Gillis says, or Microsoft (MSFT ), which is looking to increase its pay-per-click advertising revenues. Takeover target or not, it's a safe bet that Miva is just relieved that 2005 is over.  Halperin is a reporter for BusinessWeek Online in New York
BW MALL
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