From Pacific Growth Research analyst Derek Brown's May 9th note to clients reacting to FindWhat's (ticker: FWHT) Q1 earnings:
In Line Q1 Results Overshadowed By Bleak Guidance And CFO Departure; Lowering Ests Materially; Reiterate Under Weight
• FindWhat posted in line Q1 results, with revs/EBITDA/EPS of $58.2M/$8.4M/$0.10, versus our ests of $57.9M/$8.6M/$0.10
• We are materially lowering our ests to reflect the Company’s growth challenges and distribution partner strategy shift
• Maintaining Under Weight due to what we see as deteriorating business fundamentals/competitive positioning, litigation/compliance risks, diminished financial outlook
VALUATION AND RECOMMENDATION
FindWhat.com currently trades at 2005 and 2006 EV/Sales ratios of 0.6x and 0.7x our estimates of $179M and $159M, respectively, and at EV/EBITDA ratios of 10x and 29x our estimates of $11M and $4M, respectively. While these multiples are low on both an absolute and relative bases, at this time, we believe that a considerable valuation discount, relative to industry peers, is warranted. Accordingly, we maintain our Under Weight rating, reflecting ongoing concerns we have about FindWhat’s ability to maintain/grow market share in the face of stiffening competition, as well as new concerns related to material disclosures by management in recent filings with the SEC.
Lowering estimates substantially. Reflecting trends revealed in FindWhat Q1:05 results, management’s shifting distribution partner strategy, and lowered 2005 guidance (see Exhibit 3), we are reducing our forecasts materially. In Q2:05 we now see revenue, EBITDA, and diluted EPS of $43.2M, $1.2M, and ($0.06), compared with our previous estimates of $60.8M, $10.4M, and $0.13. For 2005, we now forecast revenue, EBITDA, and diluted EPS of $179M, $11M, and ($0.14), versus our prior estimates of $250M, $46M, and $0.59. Our new 2006 estimates call for revenue, EBITDA, and diluted EPS of $159M, $4M, and ($0.26), compared with our prior estimates of $275M, $56M, and $0.75.