Incredimail Raises Guidance - Stock Should Really Trade Higher

Incredimail (MAIL) raised guidance today to $27MM in revenues for 2009 and $11MM in operating profit. Per the Company's press release, MAIL is highly profitable and cranking on all cylinders, as I have written before.

The continued increase in expected revenues is driven by the growth in search generated revenues. IncrediMail’s expected increased profitability and higher bottom-line guidance, is a result of anticipated increasing revenues and effective cost management, maintaining an operating income margin of above 40%.

Commenting on the new guidance, Mr. Ofer Adler, Chief Executive Officer of IncrediMail, said, “We have begun compiling our financials for the recently completed third quarter and now believe the third quarter to be at the top of the range of our original expectations. With the anticipated growth in revenues and profitability in the fourth quarter, we are able to further increase our goals for 2009.”

Let me review again why this stock should trade materially higher. These are all themes you have read here before:

1. $11M in profit = $1.22 per share of operating profit. At today's share price that is approximately a P/E of 6.5
2. $3.8MM dividend - Assuming the Israeli Tax Authority approves the dividend (a reasonable assumption), even if you bought the stock at $10 per share it would pay you 4% almost immediately. you can't do that in T-bills today.
3. MAIL has approximately $3 per share of cash, net of the Dividend. That puts the effective P/E around 4X this year's earnings. I think it should trade at at least 10X earnings with the growth MAIL is enjoying.
4. The comps - ANSW, which is a direct comparable, is trading at a FORWARD P/E of 20. I grant you that ANSW has one of the hottest web properties right now in wikianswers.com. Nonetheless, it does not explain the disparity between ANSW's 20X multiple and MAIL's 4X multiple on THIS YEAR'S earnings. MAIL's multiple on next year's earnings is, of course, less than 4X.
5. Today is November 2 - Given Google's daily reporting of search revenue to partners, one could imagine that MAIL has seen the October numbers already and is comfortable with the Q4 CPCs that GOOG is showing and the rate of growth for Q4. This is true even though MAIL has not reported Q3 numbers yet.
6. MAIL has learned to manage the street - The Company has upped guidance in each of the last two quarters. I do not think they would have pushed the envelope to a point where they cannot exceed the current new guidance. Management, and specifically, CEO Ofer Adler, owns too much of the company to make that mistake.

One word of caution: I am not convinced that Yaron Adler has finished selling yet so if you see dips, it could be him selling his shares, so look for buying opportunities.

I continue to be bullish on the stock.

Disclosure: Long MAIL

Comments

[Michael Eis...:]

@elanziv posted this comment on the instablog
"Michael, nice job covering this stock over time. I fully agree that this stock is still just too cheap. I also agree that they have managed the street well and likely continue to do so. I think that their estimate of $11mm in operating earnings for the year is conservative."

ME: I agree it is conservative

Nov 02 12:03 PM

[KDG:]

MAIL is an interesting play right now. The contrarian may shy from the notion that their apps are burdened with bloatware in a market that is slowly ebbing to cloud computing. However, the P/E is ridiculously low even if for some, their core business model (computer email/ multimedia apps) is considered to be antiquated.

Still, they signed a 2 year deal in July 09 with Google to garner ad revenue, and their products are available in several different languages. I suspect their global niche may be bigger than people think considering their market reach may be an underlying premise to Google inking the deal.


On Nov 02 12:03 PM Michael Eisenberg wrote:

> @elanziv posted this comment on the instablog
> "Michael, nice job covering this stock over time. I fully agree that
> this stock is still just too cheap. I also agree that they have managed
> the street well and likely continue to do so. I think that their
> estimate of $11mm in operating earnings for the year is conservative."
>
>
> ME: I agree it is conservative

Nov 02 12:22 PM

[Fra...:]

> 5. Today is November 2 - Given Google's daily reporting of search revenue.
Did you mean monthly here? Cause if it's daily the fact that it's Nov 2 doesn't really add much...

Nov 02 05:21 PM

[Michael Eis...:]

I meant daily. They send reports to their partners on a daily basis that reflect daily adsense revenue.


On Nov 02 05:21 PM Fra... wrote:

> > 5. Today is November 2 - Given Google's daily reporting of search
> revenue.
> Did you mean monthly here? Cause if it's daily the fact that it's
> Nov 2 doesn't really add much...

Nov 02 11:14 PM

[Fra...:]

Mike, help me out here, why is it dropping like a rock? I'm very very long with it, because I also believe it should be trading AT LEAST in the double digits, but it can't seem to pick itself up. The short on it is very low, do you really think that Yaron might be selling? I guess we'll find out in a couple of days, but man it's ridiculous!

Sorry for the rambling... just not sure why people wouldn't it be buying it like there's no tomorrow...

Nov 03 02:09 PM

[Michael Eis...:]

somebody needed to sell today and puked out 62000 shares on the open.


On Nov 03 02:09 PM Fra... wrote:

> Mike, help me out here, why is it dropping like a rock? I'm very
> very long with it, because I also believe it should be trading AT
> LEAST in the double digits, but it can't seem to pick itself up.
> The short on it is very low, do you really think that Yaron might
> be selling? I guess we'll find out in a couple of days, but man it's
> ridiculous!
>
> Sorry for the rambling... just not sure why people wouldn't it be
> buying it like there's no tomorrow...

Nov 03 05:17 PM

[Envoy Globa...:]

"just not sure why people wouldn't it be buying it like there's no tomorrow."

We were all thinking the same thing when MAIL was at $3 and was trading at a negative enterprise value. And yet, eventually it doubled and more.

Just give it time and the stock will perform well. It takes time for the Market to catch up with these types of micro caps.

In the meantime, we all collect our dividend, which as Michael has pointed out, is better than we can get in any money market. The dividend, at this rate, is well covered for a decade, just given the cash and profitability.

Nov 03 08:16 PM

[Fra...:]

Yah... I still haven't sold it since i started my buying spree in the $3s.
So you guys think it doesn't make sense to see if there's anything out there to go out and buy with all the cash they have on hand? Is the dividend the best bang for the buck. I notice that for the first one it took about 4 months, which means that we should receive this next one as a Christmas gift, approximately.

Nov 04 12:28 PM