Jackson America

The Sad Truth for Answers Corporation Bulls

Mark,
Thank you for your input and your points are well taken. I have disclosed that I am short ANSW so that should explain why I have chosen to post my point of view here. I also appreciate the feedback that this site provides. To your question about my concern surrounding Answers.com turning the profitability corner, my answer is a resounding “no.” First, I do not believe consensus estimates. Second, for Answers.com to grow the top line, I believe they will need to spend to do so (you point out that direct sales campaigns will increase RPM’s – direct sales people cost money), which will limit their profitability. I think that Answers.com will be CF+, but I also tried to point out that FAS 123R expense is a real cost and extremely significant for ANSW, although it’s not a cash cost. I think that the company is issuing stock to employees, and more lavishly to management, as a substitute for cash comp, which artificially boosts CFO. Further, I am modeling interest income to represent almost 50%+ of their “earnings” in 1H’07 – which surely doesn’t warrant a multiple. Recall, ANSW has ~ 11M shares out, which leads to a $143M market cap, so a few pennies of “pro forma” earnings doesn’t concern me as a short. In fact, I think there are a significant number of shareholders like yourself that believe this “turn” will represent a major catalyst, which seems odd given the fact the company has guided to be CF+ and profitable throughout 2007, and analyst estimates reflect this assumption. It is my opinion that Q1’07 profitability may actually represent a major negative event when the news hits and all of the longs ask themselves “ok, now what?” On a separate note, I would be very curious to know what metrics (queries, RPM’s, and opex) you are using to arrive at your $1.00 of EPS for 2007. Either way, I appreciate the feedback. Our differing opinions are what make the horse race.