The Case for IZEA Stock Is Undermined by Competition, Lack of Growth

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IZEA Worldwide (NASDAQ:IZEA) is in a market that could be extremely lucrative. Nevertheless, the company’s extraordinarily tough competition and the recent, gigantic appreciation of IZEA stock makes the shares a sell for now. However, risk-tolerant investors should keep an eye on the company.

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IZEA provides software that helps marketers exploit “influencer marketing.” A rapidly growing trend, “influencer marketing” refers to the use of endorsements by individuals with large social media followings to advertise products and services.

“Influencer Marketing” Has Become a Big Business

According to MarketingTech, $15 billion are expected to be spent on “influencer marketing” in 2022 globally, versus $8 billion two years ago. Moreover, the website pointed out that, according to a 2019-2020 survey by research firm Gartner,  “65% (of chief marketing officers) planned to roll out full or pilot influencer campaigns.”

Also worth noting is that the explosion of e-commerce has greatly increased the power of “influencer marketing.” After all, there’s now a very high probability that consumers, by pressing just a few buttons, will literally go from watching a social media video touting a product to buying that product.

Finally, as the income and spending of millennials and Generation Z jump in coming years, the latter trend and the value of “influencer marketing” will only increase.

Tremendous Competition, a Huge Threat, and No Growth

Last year, Seeking Alpha columnist  Accord Partners, citing Influencer Marketing Hub, reported that “in 2019, there were 1,120 influencer marketing platforms and agencies, including 380 new ones created just that year. ”

No doubt, as the sector’s explosion has accelerated since 2019, that number has grown tremendously. In such a crowded environment, IZEA’s failure to break out of the pack (as shown by its growth numbers that we’ll examine soon) is totally understandable.

Another important point made by Accord Partners is that, if Facebook (NASDAQ:FB) ever gets into the business, it could likely more or less vanquish every existing player in the space. Further, I believe that if Snap (NYSE:SNAP) and/or TikTok ever entered the sector wholeheartedly, IZEA and all of its current competitors would lose a huge amount of market share.

Meanwhile, as I indicated earlier,, IZEA’s revenue numbers suggest that it so far has been unable to exploit the huge growth of the sector. The company’s top line in the 12 months that ended in September came in at $17.76 million, down from nearly $19 million in 2019 and $20 million in 2018. In Q3, the company’s gross billings fell 17% year-over-year to $5.5 million.

On its Q3 earnings conference call, IZEA tried to blame “uncertainties” linked to the novel-coronavirus pandemic for its lack of growth. But, as noted earlier, the company’s sales also dropped in 2019. Moreover, many companies linked to advertising, such as Snap, Facebook and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), have generated strong growth in recent quarters.

Could IZEAx Deliver the Goods

On the Q3 earnings call, IZEA CEO Ted Murphy said that the growth of IZEAx Discovery, the company’s “self service offering” had demonstrated “remarkable resilience” since the pandemic began. Further, the CEO noted that the “number of customers licensing {its{” software had reached an all-time high at the end of Q2. Thanks to IZEAxDiscovery, the company was continuing to add new customers in Q3, Murphy indicated.

Meanwhile, IZEA indicated that  several large, impressive companies are using IZEAxDiscovery, including Google, Canon, Panasonic, and Canon.

The Bottom Line on IZEA Stock

The shares are trading at a trialing price-sales ratio of ten, which is very high for a company that hasn’t reported any growth in recent years and whose gross sales fell in its last reported quarter.

Moreover, IZEA stock is facing a huge amount of competition. On the plus side, its IZEAxDiscovery tool seems to be gaining significant traction. Given these points, I advise investors to sell the stock no and keep an eye on the company. If  IZEAxDiscovery gains more market share and the company starts to generate growth, while the stock drops meaningfully, risk-tolerant investors can consider taking a small, bullish position in the name.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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