With Stronger Management, Web.com Discount to Website Pros Unjustified (WSPI, WWWW)

Includes: WEB, WSPI
by: Envoy Global Research

Today Web.com (WWWW) added another strong member to its already talented management team. The company announced the appointment of Joseph A. Newcomb as Executive Vice President, Secretary and General Counsel. I originally recommended Web.com, formerly Interland, at $3.25.

Aside from Newcomb's recent employment as General Counsel at Inamed Corporation (IMDC - News) (Inamed was acquired by Allergan (AGN) for $3.2 billion earlier this month), we think a more important consideration is that Newcomb has previously worked with Jeff Stibel, Web.com's current CEO, in Stibel's first highly successful Internet Venture, Simpli.com. A strong managment team with a solid track record for working together in the past is one of our most important criteria for investment in any company.

Amazingly, Newcomb has agreed to not take any salary from Web.com. To quote Jeffrey Stibel, Web.com's CEO,

"His (Newcomb's) extensive corporate and business background and proven track record will be instrumental to our success going forward. The fact that Joe has agreed to forgo a salary speaks to his strong beliefs on the future success of our company.''

As noted, in the past, Jeff Stibel, CEO of Web.com, also takes no salary from the company. It is refreshing to see this type of management at a public company. Usually management attempts to siphon cash from the company in two ways: High Salaries/Bonuses and Cheap Stock Options (more on that in a later post). In the case of Web.com two top executives have now agreed to accept compensation soley in stock (the CEO even bought more stock last month in a block transaction). This is a bullish indicator and shows quite clearly that Web.com's management team is 100% aligned with shareholders.

We think that Newcomb's appointment is also important because Web.com, formerly Interland (INLD), has been plagued by high legal costs over the last few years. These legal expenses have eaten significantly into cash-flow. Hopefully, Newcomb will help reduce these costs this year. Without these additional legal expenses, we think Web.com would be profitable.

In addition, and perhaps more significantly, it appears that Web.com is about to embark on a well-thought out IP strategy. It has been stated by Stibel in the past that Web.com has a strong patent portfolio in the web hosting business which he intends to exploit, but this is the first true public PR from the company that gives a small indication of this IP strategy.

To quote the PR:

Web.com's strong intellectual property portfolio and underlying business model provide an exciting opportunity,'' stated Newcomb. ``Jeff and I have worked together before with great success. I am excited to join a proven team and add value through my expertise in litigation, patents, and general management.

Bottom-line, we're holding strong on to this investment "gamble". We think that Web.com has an exciting future and will continue to reward shareholders, especially given Web.com's continued, and we feel unjustified, discount to Website Pros (WSPI).