Mark Mahaney "Incrementally Less Negative" on WebMD (WBMD)

May. 5.06 | About: WebMD Health (WBMD)

Mark Mahaney Smith Barney CitigroupCitigroup analyst Mark Mahaney on WebMD's (NASDAQ: WBMD) Q1 earnings (see conference call transcript):

  • WBMD reported a Beat & In-Line quarter -- $50MM rev./($0.07) EPS vs. $48MM/($0.09) Citi and $47MM/($0.09) Street. '06 guidance raised to $229- $238MM rev. due largely to the Summex acquisition (add'l $6MM this year). GAAP EPS range of ($0.07) to $0.0 is below Street consensus of $0.01.
  • Fundamentals improved -- organic rev. growth accelerated from 24% Y/Y in Dec. to 27% in March. And organic EBITDA margins expanded approx. 500 bps Y/Y, continuing a trend since March '05 of Y/Y margin expansion.
  • We are incrementally less negative -- our fully-taxed, non-GAAP '07 EPS increases from $0.55 to $0.59, and our PT rises accordingly from $25 to $27.
  • Our valuation-based Sell remains. WBMD trades at 46X our '06 EBITDA estimate ($50MM), while comps CNET & MNST trade at 17X and 25X. And 46X is a big premium to est. 23% LT growth rate. But as this Q's results show, WBMD's mkt opportunity, competitive position, and execution are strong.
  • Did WBMD’s fundamentals improve? Yes. We calculate that the company’s organic revenue growth accelerated from 24% in December to 27% in March. Also, organic EBITDA margins expanded approx. 500 bps Y/Y to 13%, with 23% incremental margins.

    Were fundamentals better than the Street expected? Yes, modestly. WBMD reported March quarter revenue of $50MM and GAAP EPS of ($0.07) vs. Street estimates of $47MM and ($0.09) EPS, respectively.

    Did the company raise guidance relative to the Street? Yes and no. The company raised its 2006 revenue guidance to $229-$238MM vs. the Street’s ’06 revenue estimate of $227MM. However, the company’s GAAP EPS guidance range of ($0.07)-$0.00 is below the Street’s $0.01 estimate. The topline increase was largely due (two-thirds due) to the April 17th announced acquisition of Summex.