Seeking Alpha
Profile| Send Message| ()  

Ancestry.com (ACOM) posted second quarter results after the close Thursday. They posted a modest top and bottom beat for the quarter, and guided modestly higher for the third quarter and year end revenues. If there was a red flag with the results, it would have to be the slower rate of subscriber growth estimated by the company through year end. I'll touch later on that. Also, average cost per subscriber increased 10% sequentially to $81.73 from $74.04. Churn increased to 4.6%, which is similar to the second quarter churn increase in 2010, and that was expected.

Comparing sequential (q to q) subscriber growth rate of 2010 against 2011 you get these numbers:

2010: 14.00%, 8.00%, 5.00%, 1.30%.
2011: 15.77%, 3.52%, 1.67%, 1.17%

Notice the sequential drop off from a year earlier, there lies the issue with Thursday's selloff. Granted the first quarter had a huge increase of 15.77%.

Valuation: Selling in the mid thirty range ACOM is selling at a discount to my price target of $46.00, and is selling at its prior forward p/e ratio of 22.23, similar to what I estimated after its fourth quarter results. ACOM also sells at a discount to Netflix (NFLX) which sports a forward p/e ratio of 39.12.

Technicals: The stock fell through the 50 dma with little effort and is testing the 200 dma today. There is some support at around the 34.50 area as shown below on a daily chart. But technically, this is a broken stock in the short term.

[Click all images to enlarge]

Let's take a look at the weekly chart to get a longer term view. Below the weekly chart shows strong support at around the 30.00 dollar level.

Bottom Line: Am I a buyer here? Maybe in the low thirties, for a longer term play, allocated properly in the portfolio. The overall market first has to figure out the direction that it wants to take. In other words, a healthy market will reward risk taking with growth stocks. A market correction obviously will not.

Disclosure: At the time of this article we do not own shares of ACOM, but may initiate a long position over the next 72 hours.

Source: Ancestry.com: Selling at a Discount in the Low 30s