Value Find: Jupitermedia Corp.
2007 was a year to forget for Jupitermedia Corp. (Nasdaq: JUPM) shareholders. But next year could be much kinder for investors in this unloved small-cap Internet stock.
The year started promising enough for shareholders of Darien, Conn.-based Jupitermedia. In February, shares of the stock photo and online media company soared on reports that it was in discussions to be acquired by larger rival Getty Images Inc. (NYSE: GYI). Jupitermedia shares quickly crossed the $10 level on the buyout speculation only to come crashing back down in early March on news that merger talks with Getty had been terminated. This downer was then followed by a series of lackluster earnings reports, which further took the air out of Jupitermedia shares. On Monday, Jupitermedia closed at $3.62, near its 52-week low.
Through an aggressive acquisition plan, the $130 million market capitalization company has grown in recent years into one of the world’s largest providers of online images for creative professionals. With over 7 million images online, this segment accounts for almost 80% of Jupitermedia’s total revenue. The remainder of the company’s revenue comes from its long-time online media operations, which include more than 150 websites and more than 150 email newsletters, serving information technology, creative and business professionals. In 2006, Jupitermedia sold its namesake Jupiter Research consulting business to a private equity firm.
Jupitermedia’s online images and online media segments have both struggled in recent quarters. The online images segment has been pressured by aggressive new microstock competitors. Jupitermedia has responded to these pressures with a new, high level royalty-free subscription offering called JupiterimagesUnlimited. On the media side of the business, Jupitermedia has spent the past year revamping its network of websites, including rolling-out a new single sign-on registration system and better search functionality. In July, Jupitermedia paid $20 million for Mediabistro.com, a fast-growing website and job board for media and creative professionals. The Mediabistro.com acquisition should help reinvigorate growth in the online segment.
So far, this restructuring has yet to demonstrate improved bottom-line results. For the third quarter ended Sept. 30, Jupitermedia posted revenue of $34.8 million, compared with $33.8 million a year ago. Online images revenue inched up to $26.8 million, from $26.2 million, while online media revenue increased to $7.9 million, from $7.6 million. However, operating income at both of these segments declined. Operating income for the online images segment declined to $8.8 million, from $9.2 million, and operating income for the online media segment tumbled to $1.5 million, from $2.9 million. Net income for the period was a loss of $0.53 million, or $0.01 a share, compared with a profit of $1.01 million, or $0.03 a share, a year ago.
On the plus side, while not GAAP profitable, Jupitermedia remains solidly cash flow positive with growing deferred revenue. For the most recent quarter, the company reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of $7.2 million. This was down from $7.4 million in EBITDA a year earlier. Deferred revenue increased to $16.1 million, from $14.3 million, due to increased subscriptions from JupiterimagesUnlimited and the acquisition of Mediabistro.com. Looking ahead, Jupitermedia expects fourth quarter revenue of $35 million to $36 million, EBITDA of $7.3 million, and net income of $0.6 million, or $0.02 a share, excluding non-cash stock based compensation expense. This guidance puts Jupitermedia on pace for approximately $29 million in full-year EBITDA. Based on an estimated current enterprise value of $214 million, this would value the beaten-down small cap name at a modest 7x EBITDA.
This downtrodden stock price and seemingly modest valuation haven’t gone unnoticed of late by Jupitermedia insiders. Three Jupitermedia insiders, including company founder and CEO Alan Meckler, scooped up shares on the open market last month around the $3.50-$3.80. Insiders have collectively purchased over $400,000 worth of Jupitermedia stock over the past 52 weeks with no insider selling over this stretch. To be fair, this insider buying, at least for Meckler, is still very small in relation to his roughly 33% ownership stake in the company he founded.
While Jupitermedia has done a poor job of managing Wall Street’s expectations over the past year, this remains a cash-flow positive small cap with solid long-term growth prospects and large insider ownership. The risk to the stock, even at this depressed level, is that competition in the online image segment significantly worsens and/or a downturn in technology ad spending hinders the turnaround of the online media segment. If Jupitermedia can get its act together and start at least meeting guidance, we believe this could be a $5+ stock again over the next year.
Bottom-line, Jupitermedia is an interesting “value find” for medium-risk oriented investors. We would look to accumulate positions around the $3.50 level.
About the Author
Contributing author Matt Ragas is an investment writer and analyst with ten years of experience analyzing small and microcap stocks, with a particular emphasis on value and turnaround situations.
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