IncrediMail Continues Its Upside Surprises

IncrediMail (MAIL) continues to deliver on its promise. Yesterday they announced extension of their Google (GOOG) traffic, which is driving the revenue growth and profit growth. It also removes the big risk hanging over the company's head in the near term.

Here are the reasons I continue to be bullish on IncrediMail (full disclosure: I am long MAIL):

1. Dividend yield is still 8+% even at this stock price. That is better than you can get almost everywhere.
2. IncrediMail makes products that people use. CEO Ofer Adler is the Chief Product Officer, which is critical for internet companies since the business model is predicated on usage of search. Getting people to use your products often is critical to getting searches and hence revenues.
3. CPCs have been down at Google. As the economy recovers (whenever it does), CPCs will rise and IncrediMail will benefit.
4. I think the company is going to beat its revised numbers for this year. If they did almost $2.5M in Q1, it feels reasonable to believe that they can hit $10M in profit for the year which is approximately $1 per share. You can decide for yourself what the P/E should be.

I have posted a few StockTalks on this on the last couple of days.

Here is an excerpt from CEO Ofer Adler's remarks yesterday.

IncrediMail has been using AdSense since the end of 2006 enabling it to share in advertising revenue generated from users clicking on Google sponsored links, in response to a search query conducted on IncrediMail sites. These sponsored links represent a significant revenue generating channel for IncrediMail in its efforts to monetize its user base. IncrediMail reported in May that about 70% of its revenue was generated from its Search business model that includes multiple search engines.

“We are very happy, having extended our agreement with Google. This renewal reflects the positive relationship established between our companies and a relationship that has allowed IncrediMail to continue to perform well,” said Ofer Adler, IncrediMail’s CEO. “The contract renewal facilitates our current business strategy, which allows IncrediMail users to carry out ‘Google searches’, will continue to move forward for another two years. It also reaffirms our commitment to our current business model that we believe has demonstrated our approach to monetizing our user base is clearly working.”

Full disclosure: I am long MAIL

Comments

[Envoy Globa...:]

Hi Michael,
Great summary. We've been agreement with you on MAIL since the start and had a good interview with the President posted here awhile back.

Just a quick two points:

1. MAIL's business is traditionally seasonal, following the traditional seasonality of all Internet advertising businesses. Therefore, I think $10 million on the bottom line is a bit too high, in terms of expectations. Company is now guiding for $7 million in EBITDA, which seems low, for sure, but I think is a good base to use when estimating the potential earnings. That said, even $7 million on the bottom line equates to about $0.75 per share in earnings.

2. Your forgot to mention the incredible balance sheet! Even after the one-time dividend of around $5 million, MAIL will have approximately $23 million in cash or $2.50 per share. So, subtracting the $2.50 from the current market price of MAIL of $6.50, gives you a $4 per share Enterprise Value. Set against $0.75 per share in earnings/cash-flow, this equates to a measly multiple of around 5. Possibly the cheapest Internet advertising business in the entire market, despite the above-average business fundamentals.

In all, I agree. There is still huge upside in MAIL if they continue to deliver. Additionally, since there are so few shares in the public float, I expect MAIL's valuation to greatly exceed standard industry multiples as more investors discover this gem in the Internet advertising space.

Jul 02 05:56 AM

[jayminho:]

dividend ? incredimail ? buy santander.

Jul 02 08:58 AM