IZEA Inc. (IZEA): 5 Top Reasons To Run From This Stock

by Sonya Colberg, Senior Editor - 9/29/2017 8:56:51 AM

TheStreetSweeper issues an alert for potential investors in IZEA, a momentary highflier that we believe is positioned to plunge.

In just five days the stock has rocketed a jaw-dropping 200%, merely amplifying the issues surrounding this chronic money-loser including:

1. Major Investor Sells

IZEA's desperation is palpable as a major investor reports on Tuesday that it has  dumped 450,000 shares of the company stock at $4 to $6.87 per share. The sale of nearly half-a-million shares sounds like a robust sell signal to us:

 

(Source: Company SEC filing)

AWM Investment owned 1,018,215 shares in February 2016. So the investor has trimmed holdings by a whopping 44%.

(Source: Company SEC filing)

*2. Desperate Recovery Attempt

After losing $4.1 million in six months in its business of connecting advertisers, freelance writers and other content providers with social media publishers - and learning the 10% owner was unloading IZEA  - the company needed to come up with a new, exciting story.

So 8 hours and 49 minutes before the investor filed the big stock sale, IZEA made an obvious attempt to deflect that bad news by rushing out a statement that it has landed a seven-figure contract with a big company over an unspecified period of time.

At the same time, CEO Ted Murphy announced IZEA is into artificial intelligence and augmented reality .. which just happen to be among the hottest sectors right now.

"We believe our commitment to service, bolstered by our technology investments in areas such as artificial intelligence and augmented reality, will lead to ongoing opportunity with the world’s leading brands,” Murphy stated.

So, IZEA's suddenly an AI  and AR force? Really???...

*3. AI, AR Not There

There's absolutely no mention in the company's SEC filings of AI or AR ever being part of IZEA's business.

Instead, the Florida-based company works with no patented technology in the fiercely competitive, low-barrier-to-entry field of pushing ads through Facebook, Instagram, Twitter and Youtube. The marketing message deliverery company also competes against direct mail, TV, radio, cable and print, which now incorporate social media. IZEA regulatory filings also have this to say about the company:

 

Our Mission
Our mission is to champion the world's creators by helping them monetize their content, creativity and influence.
Our Business
 
IZEA creates and operates online marketplaces that connects marketers with influential content creators. These creators produce and distribute text, videos and photos on behalf of marketers through websites, blogs and social media channels. Our technology brings the marketers and creators together, enabling their transactions to be completed at scale through the management of content workflow, creator search and targeting, bidding, analytics and payment processing.
 
The Company operates online marketplaces that facilitate transactions between marketers and influential content creators. These creators are compensated by IZEA for producing and distributing unique content such as long-form text, videos, photos, illustrations, and status updates on behalf of marketers through websites, blogs and social media channels. Marketers receive influential consumer content and engaging, shareable stories that drive awareness.
 
The most recent 10-Q states:
 
The Company's primary technology platform, the IZEA Exchange (“IZEAx”), enables transactions to be completed at scale through the management of custom content development, creator search and targeting, bidding, analytics, and payment processing. IZEAx is designed to provide a unified ecosystem that enables the creation of multiple types of content including blog posts, status updates, videos and photos through a wide variety of social channels including blogs, Twitter, Facebook, Instagram and Tumblr, among others.
 
In addition to IZEAx, the Company operates the Ebyline technology platform it acquired in January 2015. The Ebyline platform is a self-service content marketplace which was originally designed to replace editorial newsrooms located within newspapers with a “virtual newsroom” to handle their content workflow.

 

Now IZEA claims it is suddenly in the AI and AR business ... and the market rewards this silliness by running up the stock.

But IZEA sees that effort is levitating the stock and knows it needs recurring promotional activity to keep feeding the beast...

*4. Promote, Promote, Promote

So IZEA pops out another tweet, arguably inexcusable at this point as it pre-announces an announcement:

 

(Source: Twitter)

Meanwhile, professionals and novices troll the stock message boards, promoting IZEA in hopes of further fueling the stock rally and ultimately selling on the backs of unwary retail investors.

Professional promotions are probably happening now, considering IZEA's long history of paying professional promoters. These promotions began in 2011, when IZEA's net losses had nearly doubled to $-4 million that year alone:

 

All this pumping and story-switching is inexcusable - but not surprising - considering what IZEA will almost certainly pull next ...

*5. Potential Raise, Dilution Ahead

When a company is losing a major shareholder's interest, burning up $2.3 million in two quarters, switching stories and its stock price is high, a capital raise seems inevitable. The company can only hope potential investors won't notice IZEA's negative cash flow and awful returns. The Return On Equity has decreased significantly to -90% from -82% in the same quarter prior year, as TheStreet.com says, "This is a signal of major weaknesses within the corporation."

And IZEA hopes no one will spot the horrible margins.

(Source: Finviz)

But some of us have spotted IZEA's issues. TheStreet.com, for example, released a "Sell" report on the stock Sept. 24, after the stock had closed the Friday before at $3.20:

"We rate IZEA INC (IZEA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover.  The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself."

Indeed, this is an opportune time for IZEA to sell stock ... and substantial risk exists that a significant sale would water down current shareholders' stock and trip up stockholders trying to get out.

*Conclusion

IZEA is a particularly dangerous, non-transparent, self-promoter that is losing institutional interest. We believe it will  soon take advantage of what will likely be a brief ascent, despite the dilutive effects on current shareholders. TheStreetSweeper anticipates the stock will sustain a rapid 50% retreat near-term, followed by greater decline.

 

* Important Disclosure: The owners of TheStreetSweeper hold a short position in IZEA and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to streetsweepereditor@yahoo.com.

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