WebMD Health Corp., (NASDAQ:WBMD) provides health and wellness information services to a variety of health information users through its public/private portals and mobile applications. In this article, I will mainly focus on industry outlook, earnings and value of the company.
Outlook of the Industry
The Internet has changed the way people communicate over the last decade, and has emerged as an important means for many companies to provide their services at a global scale. Today, most people would find it difficult to live without the Internet. With abundant information available online, people can become more informed about their health problems and understand when and how to get quality treatment from their physician. But are we using the available digital information? Many would say no. The impact of the Internet on healthcare is far below what it is in many other sectors, as per the survey conducted by Pew Internet, which reports that 85% of American adults use the Internet, but only 13% of the adults who participated in the survey said "they started browsing the Internet at a website that specializes in health information, such as WebMD." More and more people intend to store their health information for easy and convenient access, and use health and wellness information to learn more about disease and treatment.
This provides an opportunity for health and wellness information providers like WebMD to achieve market share gains.
Although WebMD's overall revenues grew slightly by 5.44% in the first quarter of 2013 compared with the prior-year's quarter, recent changes in Google's search algorithms and other processes have impacted some of the rankings of their consumer sites (other than WebMD.com). These lowered rankings will negatively affect the revenues of the company in the near future as well. WebMD reported a net loss of $1.54 million or $0.03 per diluted share in the first quarter of 2013, compared with a loss of $7.78 million or $0.14 per diluted share in the prior-year's quarter. With a market cap of $1.66 billion, the company's revenues grew to $112.76 million in the first quarter of 2013 from $106.95 million the prior year.
The company's share price has soared by 73.71% over the last year. WebMD's share price moved up significantly after the recent guidance, which represented the company's turnaround from net loss to net income in the second quarter of 2013.
The company's losses are expected to end with the year 2012, and a turnaround is likely to happen in the operations profitability beginning in 2013. To the surprise of the market, WebMD in its guidance for 2013 reported that it expects revenues to be in the range of $124 to $125 million for the quarter ending June 30, 2012 - an increase of 10% to 11% from the same quarter of the previous year. It expects to post net income of $3 million or $0.05 per diluted share, instead of a net loss as a percentage of revenue of approximately 1% as provided in its previous guidance.
As per the recent guidance provided by the company, it will start posting positive earnings per share in the year 2013. In its latest guidance, the company reported that it expects its revenues to be in the range of $485 to $505 million in the year 2013, an increase of 3% to 7% from the previous year. Cash flow from operating activities was $11 million in the first quarter of 2013, decreased from $15.5 million in the prior year, same quarter. Considering the market price on July 15, 2013, the company's price-to-book ratio is 3.21, which is at a significant discount to its peers at 5.73.
The cost of getting treatment directly by meeting with the doctor is mounting. Totally depending on the information the doctors provide is like following the old traditions without utilizing the advantages and opportunities provided by the latest technology with a high level of accuracy.
Key Risks for WBMD
- The advertising and sponsorship revenue would be affected if the company fails to provide content and services to attract users.
- The company derives a major chunk of its traffic from search engines via algorithmic search results, and if it fails to fetch the required traffic, that would affect negatively the company.
- Developing and implementing new and updated features, services for public and private portals may be more difficult than expected and would amount to unexpected costs. Coupled with it is the probability of not getting the expected increase in the revenue.
- There are also risks that relate to Healthcare Regulation, Healthcare Industry and Internet Regulation.
- If the confidentiality of data regarding privacy concerns and contents are not managed properly, it may bring painful litigation for the company.
WebMD is well positioned to gain on the growing demand for online healthcare information in the future, with many people showing increasing interest in using the Internet as a medium to solve their health-related problems more efficiently and conveniently. Although high costs have impacted the net income of the company over the past few years, the recent changes in management and the upgrade of guidance for 2013 signals that the company is more likely to secure profits in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.