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

Citigroup 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.