Sector Watch: Specialty Internet sites
As of late, the subprime mess has made many investors run from any stocks having to do with real estate or mortgages, but before you head for the hills just yet, consider this: additional interest rate cuts by the Fed would likely encourage a new wave of mortgage refinancing. This would not only benefit Bankrate.com, Inc. (Nasdaq: RATE), and Move, Inc.’s (Nasdaq: MOVE) Realtor.com, but also the investors who roll the dice in the general direction of these two mortgage shopping websites.
Bankrate.com is the leading online website for mortgage shopping, and owns and operates several Internet-based consumer banking sites.
Its flagship site, Bankrate.com, aggregates information that allows consumers to compare mortgages, home equity loans, auto loans, credit cards, money market and CD rates and ATM fees. Bankrate.com gathers this information from approximately 4,800 financial institutions and 575 markets nationwide.
Revenues are generated from selling advertising on its consumer finance websites, which include Bankrate.com, Interest.com, FastFind.com and Mortgage-cacl.com. In addition, the company sells advertising in its published mortgage, CD and deposit rate guides and through its subscription newsletters. It also generates fees from licensing its data to research organizations.
Recent acquisitions are enabling Bankrate.com to extending its reach into new consumer finance segments. In December and January, the company acquired Nationwide Card Services, a Web-based credit card marketer; SavingsforCollege.com, which specializes in 529 savings plans for college tuition; InsureMe, which operates a website where consumers can compare insurance rates; and Lower Fees, which operates Fee Disclosure, an online site for comparing mortgage transaction and closing fees. The combined purchase price of the four businesses was approximately $98 million, excluding potential cash earn-outs based on achieving certain financial performance metrics.
Bankrate.com’s total revenues increased 20% in 2007 to $95.6 million from $79.6 million, driven by 31% year-over-year growth in on-line revenues, 26% improvement in graphic advertising revenues and a 38% gain in hyperlink revenues, which was partially offset by a 24% decline in print publishing and licensing revenues. Despite doubling net income in 2007 to $20 million, or $1.04 per share, from $10 million, or $0.56 per share last year, Bankrate.com’s shares fell due to lower-than-expected December quarter results.
The company attributed weak December quarter results to cancelled advertising display bookings but also noted traffic and click volume remain at record levels in early 2008. Page views for the company’s sites increased 14% year-over-year in 2007 to 554.5 million from 487.4 million.
Reflecting recent acquisitions, Bankrate.com increased its guidance in December and is presently forecasting 2008 revenues between $167 and $172 million, up 75% from 2007, and 2008 earnings before interest, taxes, depreciation and amortization (EBITDA) up 54% year-over-year to between $64 million and $68 million. Analysts anticipate 40% growth next year and growth over the next five years averaging 29% annually. My $60 price target for Bankrate.com compares with Tuesday’s closing price of $44.29. Shares have traded between $32.70 and $57.32 over the last 52 weeks.
Within the same vein is Move, Inc., an owner and operator of Realtor.com, the top-rated online real estate website, which continues to generate double-digit traffic growth despite the housing market’s woes.
Move generates revenues by selling advertising and software services, which include enhanced listings, display advertising, customer relationship management, and web site development and hosting. The company’s flagship Realtor.com web site provides on-line listings and a suite of tools, products and services for residential real estate transactions.
Despite the real estate market’s current weakness, Realtor.com attracted 4.4 million visitors in December, up 14% from a year earlier, and the site was recognized as the real estate industry’s most-visited website in 2007. Realtor.com rose to the number one position and an 8% market share, from the number four position and a 2.7% market share the previous year.
Move also offers a web-based tool called Top Producer. Realtors use Top Producer to automate appointment-making and task scheduling, distribute leads, prospect for new customers, compare and analyze markets, create customer presentations and share data. Two other websites, Move Rentals and Move New Homes, aggregate information about rental home and new home listings. Consumers can sort through individual listings based on the own, specific search criteria. Another Move product, Welcome Wagon, enables local and national retail merchants to target new home purchasers through direct mailings Consumers who are building a new home can visit the company’s Homeplans.com site to view new home designs and building plans online. Yet another website, Moving.com, gives consumers access to information and price quotes from moving companies, truck rental firms and self storage companies.
During the first nine months of 2007, Move, Inc. recorded a net loss of $7.9 million, or $0.05 per share, on revenues of $220 million. A year earlier the company recorded positive net income of $63,000 on revenues of $218 million. Most of the net loss for the nine-month period reflects one-time charges totaling $5.4 million, attributable to higher amortization and litigation settlement expenses. In September, management acknowledged the negative impact of a weak housing market but also noted belt-tightening is driving an increasing percentage of real estate advertising to low cost, on-line sources.
Analysts expect this company to rebound strongly by turning profitable again in 2008, posting 180% growth next year and averaging 35% annual growth over the next five years. Move (MOVE) shares traded near $7 last year but have since fallen to a $2.50 range, closing at $2.90 on Tuesday. My price target is $5; shares have traded between $1.62 and $6.31 over the last 52 weeks.
