Web.com Making Progress

Posted on November 14, 2006

Even though we’ve been critical of Web.com’s (WWWW) management in the
past, we think the stock is an interesting value at current prices,
following the stock’s significant drop from its yearly high. Recent
M&A activity in the company’s sector and improved financial results at the company, appear to suggest that the stock has decent upside and low downside at recent quotes.

We think that Web.com’s stock has been in free fall over the past few months, because:

A Botched Acquisition of WebSource Undermined Management’s Credibility
The Cancelled GoDaddy.com IPO Forced Speculators Out of the Stock
Management’s Adoption of what we view as a questionable shareholder rights plan.

However, notwithstanding the above negatives, it seems to us that, the stock has declined far more than is warranted. In fact, recent M&A in the sector appears to support a much higher price for Web.com’s (WWWW) shares.

We note that Website Pros
(WSPI) recently acquired 1ShoppingCart.com, a well-known SMB e-commerce
provider for $12.5 million or about 2.7X sales. WSPI itself, even after a recent stock price correction, trades at an
EV/Sales ratio of 2X. Web.com and WSPI have an almost identical revenue levels, but WSPI trades at nearly the double the value with WWWW still trading at just a bit over 1X EV/Sales. In other acquisition news, Aplus.Net , a SMB web hosting provider, has been purchased by New York-based Catalyst Investors for an undisclosed sum.

Overall, our basic investment thesis remains that the predictable nature of
Web.com’s recurring revenue stream makes the company more valuable than
the current share price implies, especially considering recent
consolidation in the SMB web hosting industry. If management continues to deliver profitable growth without getting distracted by acquisition activity, we would expect the stock to fare well in the coming twelve months.

Please Note: We first recommended Web.com (WWWW) at $3.25, and still hold a position in the
stock. All ideas, opinions, and/or forecasts, expressed or implied
herein, are for informational purposes only and should not be construed
as a recommendation to invest, trade, and/or speculate in the markets.
Any investments, trades, and/or speculations made in light of the
ideas, opinions, and/or forecasts, expressed or implied herein, are
committed at your own risk, financial or otherwise.

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This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.