Bankrate's a short, says Sy Jacobs (RATE)

This weekend's Barron's contains an interview with Sy Jacobs, who manages a long-short hedge fund focused on financial stocks. Acccording to the article (paid subscription required), Jacobs' fund has delivered 17.1% annually since its inception and 14% after fees so far this year. He argues that Bankrate (ticker: RATE) is a short. His key points:

1. Bankrate is a key beneficiary of the boom in mortgages and home-equity loans. Nearly half its revenues come from mortgage-related products.
2. Bankrate's switch to pay-per-click ads from banner ads will make the business more susceptible to a downturn in the mortgage market.
3. Stock is expensive at 44 times estimated 2005 earnings.
4. Most of the analysts who cover the stock don't underestimate the cyclicality of the mortgage market.
5. Q1 revenues grew only 1% year-over-year. Most of the growth in pre-tax income was from lowering commission rates for the company's sales force.

Quick comments:

• Does Bankrate's switch from banner ads to pay-per-click ads make its business more cyclical? I'm not sure. Advertisers' willingness to spend on bothbanner ads and pay-per-click ads is a function of their returns. In a down-market for mortgages, you'd expect spending on both types of ads to fall.
• Jocobs didn't mention the shift in the competitive landscape against Bankrate. Comparison shopping engine Shopping.com (ticker: SHOP) has launched a comparison service for mortgages which it claims is better than Bankrate's offering; and Shopping.com will get signficant distribution and traffic if its acquisition by eBay (ticker: EBAY) closes.

Comments

[S Lundgren]

BANKRATE = BAIT & SWITCH MORTGAGE ADVERTISING..

For what it is worth, Bankrate charges $6.25 per click on the unmonitored mortgage rate tables. When I say unmonitored, I mean the bait and switch is awful on Bankrate...the worst on the internet. Companies on Bankrate are so desperate for business, that they are forced to advertise rates below what is a true market rate. In turn, the consumer gets a bad taste in their mouth after going to Bankrate, and getting bait and switched. Bankrate is bad for the mortgage industry; it gives the mortgage industry a black eye, and a slimey image.
I own a mortgage company. I advertisied (never go back) on Bankrate. I know how bad it is. Bankrate only wants the check. They don't care about bait and switch. I cannot be associated after 12 years in business tied to such an immoral site like Bankrate.
The good part is that advertisers on the site, have banded together, to click in mass numbers, on the bait and switch rates on Bankrate. For example, today, 5.75% with only $599.00 in fees, on Bankrate, is bait and switch. Close to 300 existing advertisers will click on the bait and switch Bankrate advertisers, costing them $6.25, per every click.( which is good if you are long) That is a good form of income for Bankrate, and canibalism for the existing mortgage advertisers.
Bankrate has lost 50% of its advertisers, 3 years in a row...really. No more NEW mortgage companies are coming out in this market...think about it, and the few that are on there now, are angered with the high level of bait and switch. This means revenues will, HAVE to slide on Bankrate. I am in a network with over 100 PAST Bankrate advertisers. This site will continue to get new advertisers, but this site will never be able to maintain the large number of advertisers, until Bankrate contains Bait and switch...The lawsuit, the Wall street Journal mentioned, will come to fruition this fall. This will teach many exisitng Bankrate advertisers, that bait and switch is not ok, and losing your hard earned money on a bait and switch site like Bankrate, is worth suing over.
Just like Mortgage.com, wcich I shorted from 30 down to 1 cent in the 90's, Bankrate has lots of room to go down. Think about it; the real estate boom is over! There cannot be a boom, after a boom! Stock goes below 20 by years end. Basic math. I am in the biz, and am not short on this stock, because of the implicatins of existing lawsuits against Rate. I only speak the truth. Bait and switch is not good for Rate. BAIT AND SWITCH ON BANKRATE NEEDS TO BE MONITORED TO SAVE BANKRATE'S NEW CLIENT PIPELINE.


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2006 Sep 26 03:06 AM