Bankrate (RATE) is slugging its way through the mortgage collapse. Q1 fine, but guidance weak. Analysts debate whether “typical conservatism” or actual weakness. Either way, even the bulls expect stock to get smacked:
AmTech, Tim Boyd: Strong 1Q08 Results but Stock Likely Corrects on Guidance; Buy the Dip. RATE reported 1Q08 revenue, EBITDA and EPS of $42.5MM, $16.1MM and $0.46 vs. Street expectations for $38.9MM, $14.8MM and $0.46, respectively. The upside was driven primarily by the January/February spike in refi-related traffic to the mortgage rate tables on Bankrate.com. Management stuck with its initial 2008 guidance of $167M-$172M in revenue and $64M-$68M in EBITDA. Given the material 1Q08 upside, the market is likely to be a bit disappointed by this. RATE had shares rallied 36% off their March 10th bottom ahead of yesterday’s report. The stock will likely pull back to the mid-to-high $40s over the short term. As we believe that RATE is set up extremely well for 2H08 and 2009, we would aggressively accumulate the shares on weakness. Reiterate BUY rating and $70 price target.
RBC, Ross Sandler: Better-than-expected… Massive traffic growth was the driver in the quarter, with 50% y/y pageview growth. Hyperlink revenue was up 59% y/y, and display-lead gen was up 110% all in… We believe acquisitions added $13m in 1Q,resulting in organic display (plus Bankrate Select) growth of close to 30% y/y. We like the RATE business model and the management team, but have taken an objective approach to our thesis on shares in 2008, and would be disciplined buyers in the low-to-mid $40’s. RATE remains Sector Perform, target remains $53.
Positives: Traffic was up 50% in 1Q, with January up 70%, Feb up 25% and March up 53%. Trends in early April also appear solid, with traffic up mid 20%’s y/y. The company has done a great job of
matching the traffic surge with new and existing advertisers in 1Q. Hyperlink growth of 59% far outpaced our 30% estimate, and core display was solid at close to 30% by our estimates.
Negatives: The outlook on 2Q and the lack of flow-through from the 1Q upside make us cautious near-term, but could be the typical conservatism by management. Additionally, the company did not
quantify the contribution from acquisitions, so the lack of transparency could
weigh on the overall multiple.
Mark Mahaney, Citi:
- RATE Reported A Beat & In-Line Q1 – Q1 Revenue of $42.5MM came in strong vs. Citi/Street at $33MM/$39MM, EBITDA of $16.1MM came in strong vs. Citi/Street at $12MM/$15MM, and non-GAAP EPS of $0.46 came in strong vs. $0.38 Citi/$0.45 Street. The company maintained its ’08 revenue and EBITDA guidance of $167MM-$172MM and $64MM-$68MM, respectively.
- Strongest Page View Growth Since 2005 – The company reported 214MM page views in Q1, up 50% Y/Y, which is the strongest growth since 2005. While we don’t view this level of growth as sustainable, it is impressively strong and does highlight RATE as a beneficiary of interest rate volatility and of the secular growth of financial services content to the Internet.
- Margin Compression From Acquisitions – RATE’s Q1 gross margin was 62.8%, or 600 bps below our estimate, and declined 1,200 bps Y/Y (the lowest gross margins since 2005). RATE’s EBITDA margin declined about 700 bps Y/Y to 37.9%, the lowest since Q3:06, primarily due to $3.7MM in increased headcount from the acquisitions.
- We Are Incrementally More Positive – Our estimates increase – ’08 EBITDA goes from $65MM to $68MM. Our PT rises accordingly from $57 to $60 – 13X ’09 EBITDA of $87MM/30X ’09 GAAP EPS of $1.99. Positives: 1. Q1 outperformance; 2. Very likely market share gains; & 3. Great opportunity for material revenue diversification with Insurance and Credit Card verticals. Negatives: 1. Acquisitions driving much of the growth; 2. Lack of guidance raise; & 3. Hard to see a repeat of Q1’s stellar outperformance.
William Morrison, ThinkPanmure:
Bankrate reported an extraordinarily strong 1Q08, with revenue of $42.5M, 15% above our $37M estimate. Pro Forma EPS of $0.46 was $0.05 higher than our estimate, and EBITDA of $16.1M was 18% above our $13.6M forecast. Despite the significant upside, management reiterated full-year guidance, sending RATE shares down 2% in the aftermarket. We believe management is being appropriately cautious given the current economic environment. If the economy holds up from here, though, we believe that RATE is set up nicely for “beat” AND “raise” quarters throughout the rest of 2008. We reiterate our Buy rating and $62 price target.
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