American Technology Research analyst Dave Edwards initiated converage on InfoSpace (ticker: INSP) with a "Hold" rating and $26 price target. Excerpt from his September 7th report:
- While InfoSpace participates in two growing markets, the company is facing stiff headwinds in both. With declining fundamentals and questionable positioning and execution, we approach InfoSpace with caution.
- On the search and directory side, InfoSpace has a relatively small market share and limited brand power when compared with AOL, Google, MSN, and Yahoo!. We believe that InfoSpace's partnership model will continue to see margin pressure and face tough competition.
- On the mobile side, InfoSpace's role as a private label provider for carriers provides good leverage to carrier growth, but we believe that competition will put partnerships at risk and place pressure on pricing. Unlike the subscription models of some independent aggregators like VeriSign, InfoSpace's business is hit-driven, and thus can be very volatile based on content popularity.
- With $10/share in cash and $4/share in NOLs, InfoSpace shares have a decent floor. That said, we think that the current valuation is fair since we are forecasting tepid top-line growth and declining profitability. We would not be surprised to see InfoSpace acquired, but we do not see a long list of logical acquirers at the moment.
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