I’ve done similar trades in the past and this a classic example of my preferred way of trading; trading two similar companies that trade at a similar P/E ratio. At that point it becomes more about the company that I consider to be better placed for growth in revenues and earnings and in this case, it’s very clear to me. Just before going forward, if you have not heard about XO Group before, it is the company formerly known as The Knot (KNOT) that ended up changing both its name and ticker.
Before going further, let’s take a look at the numbers that we used this time around:
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WebMD has had a difficult year as has been the case for many companies but its underlying business remains very solid, it is the leader and seeing a company like Google abandon its “Health” venture is certainly a promising sign in terms of how difficult it will be to become a relevant player in this sector. There is so much money being spent in health care that there are a variety of different ways that WebMD will be able to better monetize its very targeted traffic.
The biggest problem that I have with this company is how it tries to do so many different things at once and while it is still a leader in another very lucrative market (weddings!), I think that trying to be the “solution to all needs” is very difficult to execute and certainly explains partially the slower growth rate.
The Basic Idea Of This Trade
Going short XOXO is nothing new and while the stock is a little too volatile for me to consider it an “ideal” short, it remains a company that operates in a similar sector as WebMD but tries to do so many more things instead of focusing on a few key areas. In terms of visitors, as you can see below, both companies are fairly stable so far this year with WebMD getting slightly better growth according to compete.com
Disclosure: No positions on WebMD (WBMD) or XO Group (XOXO)