WebMD Has Tremendous Growth Ahead

Sep. 4.07 | About: WebMD Health (WBMD)

If you have the problem of head lice or are looking for some of the best diet tips ever, chances are that you would head to WebMD’s (NASDAQ: WBMD) health portal to find your answers. More serious illnesses like Diabetes and Cancer drive tremendous traffic on health portals, WebMD being one of the largest in the category.

WBMD’s flagship portal, WebMD Health, is meant for consumers who can glean health information from it. Medscape, the professional portal for physicians has 30 medical specialty areas and over 30 physician discussion boards. Between the two, WBMD reaches out to more than 40 million people per month. According to comScore Media Metrix, WebMD Health is the leading health portal with 17.1 million average monthly unique visitors in Q1 2007. [You will find an analysis of the rest of the ecosystem here.]

That looks pretty rosy, but WBMD’s history shows how difficult and expensive it was to get where it is today. It lost money for 3 years - 2001, 2002 and 2003, before turning around. The company has been around, and online advertising as a viable revenue model did not become popular until the latter half of this decade. Thus, its early years were harder and less of a slam dunk.

Scaling the popularity graph thereafter, WBMD is today a sophisticated health information site. Apart from offering articles and diagnostic tools, it allows users to store their health records for easy access as they visit different doctors. Patience has paid handsomely.

Small wonder that CEO Wayne Gattinella is upbeat about the company’s future. “We feel we’re at a very early stage in delivering on the full potential of our business,” he says. I happen to agree. 2006 Revenue was $253.8 Million.

There is little doubt that WBMD’s success story has its roots in the fact that online health portals are seeing rapid growth over the last year. Let’s delve further.

For a company that doesn’t advertise on search engines or pay for higher placements in search engine results, WBMD’s 39% Y-o-Y Q2-07 revenue growth ($78.5 million against $56.6 million) can perhaps be attributed to high brand recall and already highly optimized Search Engine Rankings. Analysts’ expectation was a shade lower at $77.7 million.

How does WBMD’s revenue mix break down? A look at its H1-07 revenue of $151.4 million reveals that advertising and sponsorship at 65.9% dominates the pie, ahead of 26.4% for licensing, 6.7% for publishing (it publishes ‘WebMD The Magazine’), and just 1% for content syndication.

WBMD has made strides in niche products that have started paying out. For example, its customized private health care portals for health plans and employees of large companies now have 108 customers at the end of Q2-07, up from 82 a year earlier (+32%).

The earnings per share [EPS] for Q2-07 has seen an increase of 9 cents against –2 cents a year back. There is hope that its 2006 EPS of 9 cents will surge to 56 cents for FY-07.

The stock is VERY expensive, with a 253 P/E. It is also very lightly traded, and 70% of the company is held by Institutions and Mutual Funds. It is, however, a perfectly positioned Web 3.0 play, and could well get acquired by Yahoo! or News Corp. On the other hand, it also has tremendous growth potential as an independent company. Either way, at the right price, WBMD is a BUY.