SunTrust says they remain bullish on Bankrate (NASDAQ:RATE) and contend that the shares' recent swoon reflects an over-reaction to perceived macro risk factors. It is their opinion that the company's proprietary content, overwhelmingly low-cost organic traffic and superior monetization will fuel sustainable long-term above-average organic revenue, EPS and free cash flow growth through the economic cycle.
Some RATE detractors argue that ongoing turmoil in the sub-prime mortgage market presages overall market deterioration, which will ultimately cause many of the company's advertisers to fail or will substantially erode the company's pricing power. Firm contends that these concerns are materially misplaced, however, in light of the company's increasingly diversified advertiser base and its superior value proposition.
While they acknowledge that a sharp mortgage market contraction or a protracted secondary market liquidity crisis could cause a dramatic mortgage volume decline - with a clearly deleterious financial impact on Bankrate - they believe these are relatively remote possibilities. Firm encourages investors to note that the overall mortgage market remains healthy, despite the sub-prime debacle, as measured by 1Q07's robust MBA index performance. This is a reliable indicator of Bankrate's traffic, in their opinion, and reflects an apparent dichotomy between prime and sub-prime demand.
They are also constructive regarding Bankrate's pricing power. Some bears argue that a mortgage market contraction would adversely affect the company's pricing leverage. Again, while a deep, protracted downturn could cause the failure of sufficient mortgage advertisers to dent aggregate demand, firm contends that Bankrate's value proposition to advertisers, coupled with an increasingly diversified base, will allow the company to continue raising prices and monetizing traffic. Firm reminds investors that higher revenue per page view reflects both explicit pricing increases and improving yield. They anticipate ongoing yield optimization.
Notablecalls: RATE tried to bounce yesterday on positive mention from Jefferies, but tough tape dragged it back down. Expect to see another attempt today with better results.
RATE 1-yr chart: