InfoSpace (INSP) has been a fixture of my watch list for a few months now. The company operates in the search industry, for both the internet and mobile phone markets. They own a series of meta search sites, combining the results of all of the web's biggest search engines into one set of results, the most notable being Dogpile.com.
In the mobile phone industry, InfoSpace generates revenue through the sales of ringtones and tools such as local search. They've shown very healthy growth in the past year, specifically in their mobile phone division which grew revenues 70% year over year. Given their position in the emerging mobile technology industry, they are poised to continue to grow revenues.
Yet the growth prospects of InfoSpace aren't what really attracts me to the stock. If you take a quick glance at the company's financial statement, you should easily be able to find what I am intrigued by: InfoSpace currently has over $375 million in cash to go along with $0.00 debt. Considering that their market cap is $747.65 million, this is a huge hoard of cash. They have over half of their market cap in cash.
For a comparison, Google has about 1/12 of its market cap in cash, Yahoo! close to 1/20. While not saying that InfoSpace should trade at a multiple similar to either of these two, the disparity should not be so large. Another place were we get a huge disparity is in Price/Sales. Yahoo! features a P/S of 9, while Google's is a staggering multiple of nearly 18. InfoSpace, on the other hand, boasts a P/S of just 2. Subtract the cash from their market cap and the ratio shrinks to 1.
So why is InfoSpace trading at such low levels? First, their earnings for the first quarter of 2006 are only expected to come in at $0.03-$0.06 per share, and analysts are expecting only $0.25 for the full year -- a steep decline from last year. On top of that, their CFO is leaving the company. This is going to be a tough year for them.
Despite this, they are still expected to turn a profit, and earnings are expected to pick up again in 2007. While InfoSpace shouldn't trade at multiples similar to those of Google and Yahoo!, I feel that there is a high degree of value in their shares currently. Search has long been a high growth vehicle, and the mobile phone areas that they are in are booming. With a little over half of their market cap in cash, value investors are presented with an opportunity to buy into a solid growth stock without bucking their normal investing methodology.
INSP 1-yr chart:
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