A Penny in the Rough - Why BNX could be a 3 bagger.
Seeking Alpha Analyst Since 2011
A well known investor once said, "invest in what you know."
While these words carry a simplistic tone, they can still be difficult to follow for many traders. Unfortunately for myself and undoubtedly countless others, I can personally attest to the ramifications of shrugging off this advice. Back in 2006, rather than tip-toeing into trading as a 23 year old college student, I cannonballed off the high dive. Often investing in companies in which I couldn't name the CEO or tell you how much debt they held. However, this isn't to say I didn't succeed. In fact, in the beginning I was regularly having months in which I took home more from my trading endevors than my 9 to 5. Apparently this was not meant to last though. After quitting my day job and parlaying my savings into my new hobby, my premature exuberance came to an abrupt halt. To make a short story even shorter, my giddy beginnings were quickly shattered by my overzealous attitude and a complete market meltdown.
After the initial shock of the bank collapse in 2008 (and little market involvement on my part) I created a banking blog which I still own and operate today (BankVibe.com). My aggregate experience from building this brand and losing my shirt in the market has lead me back to that particular piece of advice - "invest in what you know." And "what I know" has lead me here today to pump this penny stock to anyone naive enough to listen.
Banks.com (BNX) is a company that has intrigued me for quite some time. It was founded almost simultaneously with the internet itself back in 1994 and was one of the original players in the online banking niche. In these pioneering days, Banks.com and Bankrate.com operated pretty much unobstructedly for years. However, the two company's profiles today show entirely different outcomes from their once similar landscape. In 2007 BankRate was acquired and taken private by APEX partners for $28.50/share (valuing the company at approximately $571 million) and Banks.com (BNX) currently trades at $0.20/share with a market cap of just over $5 million (less than one-hundredth the value of BankRate). And while this 'winner take all' dynamic is by no means unfamiliar in the online lead generation business, it doesn't negate the potential for a profitable outcome for banks.com. Speaking from experience with my own banking blog, I know that there is much to be had in terms of revenue without being number 1.
To get a better idea of where the potential lies with Banks.com, let's take a look at some industry comparibles.
First, Banks.com receives a significant amount of web traffic every month, Quantacast puts this number at around 250k visitors monthly. Compare this to a recent acquisition of BankRate's - in 2008 BankRate acquired the blog Bankaholic.com for an astounding $15 million (roughly 3x the current value of Banks). At that time Quantacast had estimated Bankaholic's traffic to be almost exactly the same as what we see with Banks today.
Second, Banks.com uses almost the same business model as both Bankaholic and BankRate. They both offer internet advertising services that enable advertisers to sell their products and services online to customers through their distribution network that consists of search engine and web properties. In a nut shell, if you're in the market for a mortgage and you search on google for "mortgage rates" you will inevitably end up at a banking website (probably BankRate). And depending on how far along you are in the buying process you may also submit personal information to one of the banks or credit unions that the banking website has directed you to, which if you continue with the mortgage, will provide the banking website with a commission for providing the lead. Now multiply this by 250,000 visitors entering Banks.com on a monthly basis (more than 4 million monthly visitors for BankRate) and you get a significant amount of revenue from lead generations each month.
Third, let's even go so far as to pretend that Banks.com was just a domain name with no website on it. Even if this were the case, there would still be reason to believe this domain holds more value than the current $5.5 million valuation we see today. Just last year Quinstreet (QNST) purchased Insurance.com for $36.5 million (7x the valuation Banks.com currently holds with a little under 1/3 of the traffic). And within the last 5 years Quinstreet has made a number of acquisitions that has surely had Banks.com share holders wondering "why not me?"
January 2010 - Quinstreet acquires credit card lead generation website CardRatings.com for $10.2 million (2x the current valuation of Banks.com with less than 1/5 the web traffic).
2009 - Quinstreet acquires mortgage lead generation website HSH.com for roughly $10 million (2x the valuation of Banks.com with less than 1/3 the traffic).
2009 - Quinstreet acquires insurance lead generation website Insure.com for $16 million (3x the valuation of Banks.com with less than 2/3 the traffic).
See Quinstreet web property acquisitions here.
I'm invariably bullish on this little "penny in the rough" and I think that with a little guidance and help from a comeback of popular banking products such as savings accounts and bank CDs, this stock could fly. And even though today's stock market has me wading in with much greater apprehension, this time I'm at least investing in what I know.
Disclosure: I am long BNX.
Additional disclosure: I am CEO of BankVibe.com
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