InternetQ fights back against Winnifrith blog claims

After investors failed to take heed to a quick rebuttal last week, mobile marketing group InternetQ has issued a detailed statement to defend its business from "serious accusations" made by blogging tipster Tom Winnifrith.

Last Thursday the Athens-headquartered and London-listed company said it had decided to "strongly refute the assertions made and the conclusions drawn" by Winnifrith on his ShareProphets website but still saw its share price more than halve from above 130p to less than 60p on the day.

In an article entitled 'From Athens with love: InternetQ - my target price is 1 drachma', Winnifrith, a former journalist at the FT's magazine divisions, the founder of T1ps.com and now the self-styled 'Sherrif of AIM', linked InternetQ to scandal-hit AIM peer Globo, including the fact that both it and InternetQ were brought to aim by nominated adviser RBC Capital Markets and broker Canaccord.

In a 3,000-word announcement that ranged from a defence of the various business models of its subsidiaries to its rationale for having multiple subsidiaries in various countries, InternetQ chief executive and founder Panagiotis Dimitropoulos and chief financial officer Veronica Nocetti began by defending the company's accounting methods.

Winnifrith had written that, "like Globo", the company capitalized "the majority" of its operating costs, hence reporting high profits, which "is not illegal, but it is misleading".

InternetQ pointed out that in 2014 the portion of total payroll that was capitalised was 14%, or less than 6% of total operating expenses, while none of its intangible assets has been impaired to-date.

"Investing in and owning its own technology helps the Group maintain strategic flexibility and protect its margins. The recent launch of a self-service ad tech platform as part of Minimob provides promising evidence of the success of this strategy," it added.

In response to the tipster claim that "like Globo, it has a history of bizarre transactions", the Greek company said its four main acquisitions in the past five years had been "based on clear, pre-agreed strategic objectives to broaden the group’s geographic and technical profile, people and customer base", with most key employees still with the group.

As well as casting sceptical aspersions on the Minimob advertising platform's capacity for growth and the lack of positive social media influence of the Akazoo music streaming business, the blogger said a "potential red flag" was the reliance on Russia for a large proportion of revenues.

InternetQ, whose bigger clients include Alibaba, eBay and Amazon, argued that sales from Russia in the last full year were significantly lower than suggested by the blogger, at 31% of European (not Group) revenues, therefore around €16m in total, not the €41m Winnifrith suggested.

"The group operates various services in Russia, not only mobile advertising, but also music offerings and legacy mobile marketing campaigns, and hence the mobile ad spend market data quoted by the blog’s author does not cover the full extent of the market being addressed. Most of these operations are run remotely, as the group’s business model does not rely on local execution as its service platform is cloud-based," it said.

The company has also contacted several third parties to remove its office addresses from their websites, which were cited as causes for some suspicion, as it maintained these were illegal and the companies unconnected.

Following a trading update last month, broker Canaccord, which resigned as Globo’s joint corporate broker as the company confessed to serious financial irregularities that had been brought to light by a blog, downgraded its forecasts for the company for this and next year to reflect an accelerating shift away from traditional SMS campaigns to direct smart phone advertising, which will have a negative impact on short-term revenues and profits, but boost cash flows.

"InternetQ's share price has been hit hard by investor concerns over weak cash flows. It generated negligible free cash flow in FY14, reflecting working capital outflows and rising capex. There will be disappointment at the extent of downgrades, but if INTQ can demonstrate this is a managed transition of mobile marketing into a higher quality cash generative business, we see definite scope for rerating."

Shares in InternetQ were up 21% to 75.24p by 1135 GMT on Monday.