Health Guy

Time to Buy WebMD

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.