Interland (INLD) Earnings Update
Posted on January 9, 2006
Interland (INLD) came out with earnings this morning. I just listened into the conference call and still feel that the stock is an excellent "gamble" at current prices. In fact, I picked up some more shares at $3.82.
So why is the stock a good buy?
First, from a strictly financial perspective the stock is undeniably cheap. The company has about $33 million in cash or about $1.80 a share (I´m using about 18.5 million fully diluted shares as my share count). Annual revenues are about $48 million or about $2.60 per share. So if the company just sold at 1X revenue plus cash, what I consider a bare bones valuation, it should be worth approximately $4.40 per share. So anything beneath $4 is a good buy here. I should mention that the company´s operational metrics are very strong with SAC (subscriber acquisition costs) reduced by 35% to $112/subscriber, and churn stable at 2.3%. Customer count is 137,000.
From a strategic perspective, the company looks even more interesting. From what I can gather, Interland, soon to be renamed Web.com, will begin moving into the consumer Internet space, ala Movable Type (Typepad) etc. While this market is highly competitive, the risks and costs (both upfront and ongoing) for Interland to move into this market are small. As such, any revenue gains from this new consumer market, should be highly profitable. Importantly, the company´s new management team has extensive experience in the consumer market, with the CEO formerly of United Online. Overall, I´m quite confident that Interland will be able to grow a decent-sized consumer online business and steadily grow the SMB hosting business. When revenues do begin to accelerate again at INLD, something which should happen in the next 6 to 12 months, I expect the stock to double, if not triple, pretty quickly, bringing the company´s valuation closer to some of its competitors.
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