Bankrate (RATE): Solid Results But Tepid Outlook

Bankrate (RATE) had a solid Q3: in-line revenue and upside on EBITDA margin and EPS.  Management attributed tepid guidance to “conservatism,” but always possibility that Q4 trends are slightly weak.  Management said August was “wild” (turbulent, some cancellations, lots of moving spending to other categories of advertising) and that September was excellent.  Unfortunately, no commentary on October.  Overall, company remarkable unscathed by credit carnage.

Key Stats:

  • Total revenue of $24.9 million (vs. $25.0 consensus), up 28%.  An acceleration from 18% in Q2.
  • Online revenue up 37% to $21.6 million, an acceleration from 31% in Q2.
  • Graphic ads up 28% to $11.7 million, a slight deceleration from 31% in Q2.  Benefited from rate card increase beginning of year.
  • PPC revenue up 50% to $ 9.9 million, a major acceleration from 31% in Q2.  Co raised prices about 20% in early Q3 in this category, which likely drove the acceleration.  Combo of more clicks and higher rates.  800 advertisers.  Coverage across all products good. 
  • Print publishing and licensing revenue was $3.2 million, down 13% (improvement from 28% drop in Q2).
  • Gross margin up, benefiting from mix.  87% online now.  99% incremental EBITDA margin.  Enormous leverage.  $150 rev per thousand pageviews.
  • EBITDA margin (ex stock) was 46%, up 2 points from Q2.  Expect continued expansion in next few years.
  • Page views up 14% to 144.2 million, modest deceleration from 17% in Q2.

Think core business will remain strong.
Year Total revenue at low end of guidance because of print.
Year EBITDA high end of updated range (but range not raised).

Expect Q4 expenses flat with Q3.
Pageviews expect up.  October running ahead of last year (traffic).  Fed cuts help.
“We have been conservative on guidance.   We think opportunity for upside.”
Incremental EBITDA contribution: we were conservative here, too.

Lead-gen was soft (down year over year)  (LendingTree clobbered.)
Why sequential decline in display, flat revenue per pageview?  A: A sell-through issue.  We didn’t see pressure on CPMs.  People moving money around, out of home equity into deposit, etc.  September was a terrific month, August was wild [translation: crappy].  Wasn’t necessarily cancellations–people were moving money trying to figure out where money going.  September best month we’ve ever had–graphical and CPC.  August was turbulent market.

Tough quarter for our advertisers, but weathered it.
Organic traffic 75%, partner 11%, paid search 14%
We think org traffic higher margin.  Continues to grow double-digits.
August 6.1 million uniques highest ever.

Display ads:
Some advertisers did change plans intra-quarter
Some directed to prime instead of sub-prime, which helped us.
Some increased deposit ads…

+20% sequentially
Total click volume up y/y and seq.
Deposit channel 44% revenue
Mortgage 42% revenue
Other 13%
876 advertisers.

Why strength in such a tough environment?
For many small guys, we are No. 1 source.  For big guys, consistent with predictable click/conversion.  When times get tough, gets moved to core partners/best sources.  We think we are essential buy from many advertisers.

We have also seen strong traffic from consumers.  Lots of newspaper placements, lots of co-branded web sites.

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