Time to Buy WebMD

WebMD (WBMD), is ranked by Times as one of the 25 sites we can’t live without, rated by Forbes as the best of online health information portal, and recognized by Trustee as one of the top 20 most trusted companies on the web. The company announced its Q4 financials as well as its merger with HLTH Corporation in February.

Q4 revenues of $96.6 million were 22% higher than previous year revenue and a tad lower than market expectations of $97.1 million. Its EPS recorded a substantial 126% increase to $0.34 from $0.15 earned the previous year. Its EPS also beat market expectations of $0.28.

Segment-wise, 73% of its revenue came from Advertising and sponsorship. Private portal licensing brought in 22%, and the 5% balance was earned from publishing and other sources.

For the year, the company clocked revenues of $332 million, representing a 31% increase over previous year revenue of $254 million. For the year, revenues were short of market expectations of $336 million. Its annual earnings stood at $0.64, which is substantially higher than $0.08 of the year before. Analysts were expecting earnings of $0.58.

WebMD’s reach can be gauged by the fact that during the quarter, it recorded an increase of 26% in unique users per month to reach 44.8 million users. It reaches one in every two U.S. adults, three of every four women, and 95% of all adults seeking health information online.

Its vast viewership is thanks to the company's new portal technology platform which has helped increase its search engine optimization, and the ability of its articles to be ranked higher in natural search results. The company's content ranks on the first pages of Google (GOOG) and Yahoo (YHOO) for 50% of frequently searched health terms.

Its partnerships with organizations like Medcenter have helped it expand its Medscape brand of health information into Spanish and Portugese speaking nations. In my Web 3.0 analysis of the online health industry, I mentioned how “niche positioning, premium and highly targeted content and strong demand” will lead to revenues for health portals. WebMD is a living and breathing example of that.

With products such as its private health care portals, drug search and symptom checker tool it tackles the niche positioning. Its quality content takes care of both online and offline competing media, and its interfacing with hospitals, physicians, pharmacy labs help the company retain satisfied customers. I stand by what I said earlier, WebMD has tremendous growth ahead.

The stock, however, hit its record 52 week low of $23.15 early March this year and is still trading at $23.77. This might just be the right time to buy WBMD.

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Comments

[Jake Malloy]

While there may be some fundamental financial analysis that says on a discounted cash flow basis WBMD is a buy but there is no reason to buy this company based on any analysis you offered above. In fact, most of what you report is simply taken from their earnings call or other available information and not any specific insights.

The fact of the matter is that WebMD is 100% opposite of what you call "niche content". The vast majority of their content is rented from health publishers whose content is easily found all across the Internet. I am speaking of firms like Healthwise, Harvard Health publications, MayoClinic, etc. Anyone with money could start a website tomorrow with 80%+ of the same content as WebMD.

And while you note that WebMD does have large reach there are a few problems. One, organic growth is likely saturated based on the data you provide. Two, ad agencies across the country hate to work with WebMD who is arrogant and overpriced. Three, CPM revenues are declining as Pharma is putting pressure on online health portals to deliver more "action" and less banner ads which are ineffective at delivering the ROI required to meet their needs.

And of course there is much more competition today than even one or two years ago. Back then WebMD was the only kid on the block and had free reign. Not any more. Users are tired of their inch deep and mile wide content and have migrated to deeper, "long tail" websites. Competitors like Revolution Health, Everyday Health, and Microsoft are coming on hard and fast competing for both ad dollars and user attention. WebMD has done a good job with Medscape which will be more difficult to supplant although new sites like Sermo have an interesting model and are gaining traction.

As I said at the start of my comment, there may be a financially sound reason to buy WebMD at these levels but not a strategic business reason. I suspect as the recession deepens WebMD is likely to test its IPO price of $17. And if the institutions get scared or need to liquidate for other reasons this could be a low teens stock by summer.

[PaulB]

The stock hit a new low today (4/8/08) at $22.07, below its IPO debut. Why? A number of competitors making inroads into the market are poised for grabbing market share away from WebMD. The marketing community is not altogether thrilled with the fact that they have been held hostage to high ad rates and a difficult legal team to contend with. Alternative advertising outlets such as The Health Central Network and others are looking good.

[Robert Kadar]

New competitors indeed -- Good Health Advertising Network launched to take advantage of the long-tail of Health and Medical publishers grabbing ever larger percentage of user attention.
Robert Kadar, CEO
Good Health Advertising Network
GoodHealthAdvertising.com

[Jaun]

Sramana, aren't you tired of the over promise and under deliver that you continually get from management? Please respond.