Bankrate (RATE) Citi's Mahaney's Great Contrarian Call

Thank god for analysts with balls.

The mortgage market is imploding, financial firms are writing off tens of billions of losses, financial ads are getting slashed, companies dependent on financial advertising are plummeting…and what does Citi Internet analyst Mark Mahaney do with financial media company Bankrate? He UPGRADES IT TO BUY!


We’ll let Mark explain after the jump. Before we do, however, a pat on the back. The most valuable thing a sell-side  analyst can do is make you think. And by reminding us that there’s a real company with a real value proposition under that terrifying stock-price implosion, Mark is doing just that.


Upgrading RATE To Buy With A $55 PT – We find RATE attractive post an almost 30% pullback over the past month. Given macro concerns, investors should be cautious going Long anything with mortgage/financial services exposure, even online. But we see 5 factors providing an attractive entry point. 
 1) Channel Checks Address Concerns Re: RATE Customer Cutbacks – Our checks with several of RATE’s top advertisers indicate a continued commitment to spending with Bankrate, driven by a consistent view that RATE provides one of the best customer acquisition channels for financial services marketers.

 2) RATE Continues To Demonstrate Material Pricing Power – Bankrate has raised prices 8 times since ’05, while consistently growing its customer base. We view this as market proof of RATE’s value proposition. And we believe that RATE has already sold inventory against a January 1st planned increase.

 3) New Growth Initiatives Could Be Material In ’08 – RATE launched a co-branded site in September and a Yahoo! co-branded site in November. RATE also introduced a new retirement channel in October and plans to build out its credit cards, insurance, and college finance channels. A Q1:08 Website overhaul should also help improve monetization.

 4) RATE Has Demonstrated Consistent Diversification Away From Mortgages -Mortgage Channel now accounts for 42% of Hyperlink revenue, with Deposits and Auto Loans now accounting for 58%. This marks a two-year reversal.

 5) RATE’s Valuation – at 10X ’08 EV/EBITDA – Appears Compelling – Especially given 55% ’07 EBITDA growth and our outlook for 35% ’08 EBITDA growth. 10X marks a two-year trough. Net cash of $141MM ($7.20 per share).

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