Analysts react to results

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Here's what the sell-side had to say about SHOP's results:

Anthony Noto, Goldman Sachs

We believe management’s decision to increase 2005 international investments is prudent for the long-term health of the business. However, the lower than expected 2005 EBITDA margin and 270 bps EBITDA margin contraction from 2004 will likely weigh on the shares given investor concerns with lower profitability and uncertainty of a payback period, especially amidst heightened competition and rising paid search prices. The shares will likely remain range-bound over the near-term until there is increased visibility in the company’s ability to continue to  execute well in the face of these headwinds. We maintain our future implied value range of $23-$29 and our IL/A rating reflecting lower relative growth and profitability than our OP-rated stocks.

Scott Devitt, Legg Mason

We continue to believe that there is too much competition in the shopping comparison category for any one participant to attain sustainable market share gains without pricing erosion. We believe there will be consolidation in the space in the next 12-18 months and will wait for a less cluttered market with fewer participants before becoming interested in investing in shopping comparison companies. We believe that has the ability to maintain a 25% revenue growth rate over the next three years, generating $40 million in operating income in 2007. At 20x 2007 operating income SHOP would trade at a market cap of $800 million. Using a 15% discount rate we derive our 12-month fair value estimate of $20 per share.

Shawn Milne, Friedman, Bilings, Ramsey

We believe the long-term growth and margin opportunities remain intact. Our $29 price target is  based on a blend of our three-part valuation of 20x EBITDA, 30x  P/E, and our DCF analysis.

Safa Rashtchy, Piper Jaffray

While we believe the growth story remains intact, we are taking a slightly more conservative stance on shares of SHOP as well as the valuation as we do not expect as much upside in numbers as we had originally anticipated. We are moving from 21x 2006 EBITDA to 18x 2006 EBITDA. As such, we are lowering our price target from $27 to $24 while maintaining our Market Perform rating. Our price target also implies 40x 2006 fully-taxed EPS of $0.59, or a PEG of 1.3 assuming 30% LT growth.

Terry Heath, CSFB

We continue to believe that is one of the best  ways for small cap investors to gain leverage to the strong growth in both online advertising and ecommerce.  While Shopping’s short history and size certainly mean there will be ample volatility, with the stock trading at 13x ’06 EBTIDA we believe that the  risk/reward is well in the favorable column.

Mark May, Kaufman Bros

We view SHOP's 4Q04 results and management's outlook as positive, reaffirming our constructive long-term view of the specialized search engine/comparison shopping segment and on in particular. As such, we are re-iterating our BUY rating. Despite the stock trading at forward EV/EBITDA and P/E multiples of 22x and 35x, respectively, we view the stock as attractive given expected earnings growth. We forecast adjusted EPS to grew 67% in 2005, 37% in 2006 and 28% in 2007. Our year-end 2005 price target of $29 is based on applying a 34x P/E multiple to our 2006 EPS estimate of $0.86.

Richare Fetyko, Merriman Curhan Ford & Co.

We believe that our bullish thesis on remains intact  and that the near-term investments should enhance the company’s  leadership position and its addressable market. Strong secular trends  in online advertising and e-commerce, along with category and geographic expansion and pricing upside, should translate into 25-35%  long-term revenue growth over the next three to five years. We see  an opportunity for long-term investors to accumulate shares at an  early stage of the company’s and industry’s growth. We would value  the stock at 20x EV/EBITDA (FY06), or at $30.00 per share. 

Jeetil Patel, Deutsche Bank

Maintain Sell, Price Target at $20.
Our target is based on 27x our 2005 untaxed EPS estimate of $0.73, and 25x 2006 EPS. We are maintaining our Sell rating, due to valuation relative to risks to traffic and Shopping's position as an intermediary.

Full disclosure: at the time of writing I'm long SHOP.