Refer to this article for the basic thesis on TechTarget (NASDAQ:TTGT). In short the company manages 150 different technology websites all focused on the enterprise IT buyer. If a CIO is researching a purchase of routers, he would go to TTGT's Networking website where he could learn about the trends in routing and gather information on the available router choices. TTGT's core business is to sell leads based on the what its users click on its sites to the IT vendors selling products such as routers.
This has been a good business for the company which grew its revenues from $30m to $100m from 2005 to 2011. At that point, the company hit a bit of a speed bump as its large IT vendor customers had declining revenues and consequentially cut back on their marketing budgets, hurting TTGT's business. Revenues dropped 15% over two years and because the company has a highly fixed cost structure, EBITDA dropped significantly.
Beginning in Q4 2013, core revenue began to flatten out for the company opening the door to revenue growth from two sources. First, the company's international business is growing at 20%+ and now at 30% of the total business its growth is beginning to make an impact. Second and more important, the company's new product IT Deal Alert is beginning to grow rapidly and accounted for 15% of total revenue in Q1 2014. Data mining all of the user data from its 11.5m users on its 150 websites, TTGT is able to figure out which IT customers are looking to make an imminent purchase decision. It then sells this data to its IT vendor customers on a subscription basis. This is basically the best kind of sales information a tech company could have because it allows them to focus on the hot deals and not waste time on customers who are not in the buying mode. This business did $4m for TTGT in 2013 and the company is (conservatively) looking for it to grow 400% in 2014.
The company last night raised its revenue guidance from "double digit" (read 10%) to low-to-mid teens growth for the year. I believe this guidance is very conservative and wouldn't be surprised if the company grew 20% this year. On the EBITDA front, the company raised EBITDA growth guidance for the year from 50% to 80%. Due to the company's highly fixed cost structure, incremental revenue growth drops nearly unhindered to the bottom line. We feel that the company can eventually generate 40% EBITDA margins which would result in at least a 3-bagger in stock price from here.
Disclosure: I am long TTGT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.