Stock reviews: Internet content companies

avatar By: IS
Date posted: 02.26.2010 (5:00 am) | Write a Comment  (9 Comments)

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I often see all internet companies classified together and honestly it’s just not right to group them all together. One of the categories that is easier to understand is the web content companies. These are companies that are basically media companies, they do not sell products or services, they generally do two simple things:

-Produce content
-Sell advertising

Of course, some companies are larger and have other activities but I would say that in general, their main revenue generator is advertising. Among the companies that I track, here are the main companies I would describe as “content companies”:

IAC Interactive(IACI)
WebMD(WBMD)
The Knot(KNOT)
YHOO(YHOO)
AOL(AOL)

What are these content companies?

Basically, these companies profits depend on:

-Revenues which are driven by:

-Visitors
-Advertising rates

-Expenses which are driven by:

-Cost of producing content
-Advertising expenses

Apart from Yahoo and AOL, I would consider these companies/websites to be very targetted and thus capable of getting high advertising rates. But that being said, traffic remains the core, especially when it is “organic growth”. Buying traffic is easy but not very financially viable long term. So the key is getting increased traffic with quality content. You can see graphs of Yahoo traffic (amazing how much steam it has lost in recent months) as well as a graph for WebMd and TheKnot (look at variations only, obviously many more users looking for medical advice than planning for a wedding). It is more difficult to do for companies like AOL and IAC Interactive which have dozens of different properties. Just take a look at IACI websites to get a feeling.



I have said it before and will say it again, I think it is increasingly difficult to be competitive when building websites in so many fields. You have dedicated teams working on one specific niche or subject and it becomes very difficult for “web conglomerates” such as Yahoo, AOL and IACI to compete. So yes, I have been doing and will probably continue to look for trades that will put me long a specialty website and short a web conglomerate.

Just out of curiosity, I did some comparisons between the two groups for a few different financial items (since AOL was only recently spun off, it id not included for lack of data):

Sales growth:

Ticker
Name
Price
PE Ratio
PE Next Year
Return YTD
Sales Growth
Analyst rating
Book Value
Beta
Revenue/Share
Sales 5Y Avg Growth
EPS 5Y Avg Growth
Sales 5Y Avg Growth
EPS 5Y Avg Growth
GOOGGoogle Inc595.08N/A18.1N/A19.234.46N/AN/AN/A23.8417.098.1913
NILEBlue Nile Inc27.431.0821.23-43.2412.493.672.180.9535.8910.85109.90.65N/A

That being said, buying Knot(KNOT) at the current P/E ratio seems unreasonable (which explains why I am currently short) but I think by waiting for more “ideal” valuations, there are many trading opportunities. I do hope to add more of these companies to my trading radar in the future which will give even more possibilities.

Ticker
Name
Price
PE Ratio
PE Next Year
Return YTD
Sales Growth
Analyst rating
Book Value
Beta
Earnings
Revenue/Share
Sales 5Y Avg Growth
Sales 5Y Avg Growth
EPS 5Y Avg Growth
TZOOTravelzoo Inc17.5215.8417.42-18.294.673.672.640.7210/17/201410.369.6911.7717.82
TRIPTripAdvisor Inc99.8869.1736.6422.323.813.547.191.3310/23/20146.6129.3531.39N/A

The main risk that I see is always that since these specialised websites are more of a “One trick pony“, if a major competitor jumps in, they are obviously more vulnerable.

Do you agree that in general, these web conglomerates will underperform other specialised websites?

More on this topic (What's this?) Read more on The Internet Impact at Wikinvest
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9 Comments

  1. avatar

    [...] might be one of the more vocal critics of Yahoo and AOL (and of web conglomerates in general) but to be honest, these companies are not making it easy for those defending them. It seems like [...]

  2. avatar

    [...] readers know that I am not a huge fan of IAC Interactive and most other web content conglomerates. I do not have a specific reason to short IAC Interactive (IACI) right now apart from the fact that [...]

  3. avatar

    [...] a name, other times it’s about traffic, revenues and sometimes even profits. Big names like Yahoo (YHOO), AOL (AOL) and IAC Interactive (IACI) have been loading up putting huge amounts of cash into this new virtual world. Many investors and [...]

  4. avatar

    [...] of IntelligentSpeculator know that we are not fans of AOL, of its business model and its future prospects. That being said, it just acquired a blog that we [...]

  5. avatar

    [...] fair to say that I have not been 100% consistent regarding internet content networks such as AOL, Yahoo and IAC Interactive. (IACI). One of my main criticisms of their business model is how they try to do so many things instead of [...]

  6. avatar

    [...] left behind. I have been very vocal in my dislike of how things have been going for Yahoo and other similar companies such as AOL (AOL) and IAC Interactive (IACI). But Yahoo clearly remains the top stock in my “hate list”. Some stocks such as Blue [...]

  7. avatar

    [...] them in the past, I would often include them together such as here where IAC Interactive also made the “losers list”. In the past year or so, I have started changing my opinion about AOL and one of its great moves [...]

  8. avatar

    [...] IAC Interactive (IACI) and Yahoo together (I am short on all 3 names right now!) and named them the internet content companies. Recently, I have been much more positive about AOL but have not been anywhere close to backing [...]

  9. avatar

    [...] the long/short trade features two somewhat similar companies; WebMD (WBMD) and The Knot (KNOT), two content companies that are very specific in their targets which I like much more than [...]

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