Value Find: EDGAR Online, Inc.
After years of mismanagement, the combination of an experienced new CEO and the adoption of a new financial reporting technology have things looking up for this financial data and information provider.
Founded 11 years ago, back before the first dot-com boom, EDGAR Online, Inc. (Nasdaq: EDGR) was the first company to make U.S. Securities and Exchange Commission (SEC) filings available in real-time on the Web. Norwalk, Conn.-based EDGAR leveraged this early-mover advantage into a subscription-driven business largely focused on the consumer market. Faced with a host of competitors and increasing pricing pressure, though, EDGAR’s revenue stayed flat at around $16 million a year from 2002 to 2006, and sustained profitability proved elusive.
Over the years, EDGAR’s founding management gained a reputation for broken promises and the stock languished. At the Tuesday’s closing price of $2.73 a share, EDGAR’s stock is down over 40% from where it traded at two years ago. Shares have traded between $2.04 and $3.65 over the last 52 weeks. Frustrated EDGAR shareholder Basil Regan, of Regan Partners, took matters into his own hands in February of last year when he announced plans to shake up EDGAR’s board of directors and management. EDGAR responded to the shareholder pressure by naming two new independent directors and plans to hire a new company president.
These moves averted a proxy contest by Regan Partners and, in April 2007, EDGAR named Philip Moyer, a former Microsoft Corporation (Nasdaq: MSFT) executive, as its new president. Only a few months later, in August 2007, with the resignation of EDGAR CEO and co-founder Susan Strausberg, Moyer took over the top spot as well. Moyer finished his 15-year career at Microsoft as the general manager for its professional services industry. Moyer’s arrival at once-sleepy EDGAR is a good endorsement and seems particularly well timed to boot.
EDGAR is also getting a shot in the arm from SEC chairman Christopher Cox. Under Cox, the SEC has expressed its desire to see all public company filers ultimately adopt a new data-tagging technology called XBRL, or eXtensible Business Reporting Language. EDGAR, already the world’s largest provider of SEC filing information, has quietly emerged as the largest provider of XBRL data tagging technology. In the first quarter of 2007, EDGAR launched version 2.0 of its I-Metrix suite, which uses XBRL and takes advantage of many of Microsoft Office 2007’s new features. I-Metrix seems to be gaining traction among corporate customers.
The transformation of EDGAR’s business model from subscriptions to I-Metrix-led data licenses and solutions is evident in the microcap name’s latest results. For the fourth quarter ended Dec. 31, 2007, EDGAR’s revenue rose 17% to $4.8 million, led by 49% revenue growth in its data licenses business to $2.3 million. Subscriptions revenue declined 4% to $2.2 million. Advertising and e-commerce revenue rose 29% to a still tiny $228,000. Turning to the bottom line, EDGAR reported an operating loss of $1.5 million, or $0.06 a share, compared with an operating loss of $1.6 million, or $0.06 a share, in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) doubled year-over-year to $149,000.
For the full year, EDGAR generated revenue of $17.9 million, a 10% annual increase. The company’s full year EBITDA loss declined to $1.2 million from $3.2 million. EDGAR ended the year with 266 corporate data contracts, up 10% from a year earlier, and 12,500 total subscribers. The average value of a corporate contract rose 42% from a year ago. EDGAR’s balance sheet remains thin, ending the year with $3.8 million in cash on hand and $2.4 million in debt.
In mid-January EDGAR announced a partnership with Microsoft which makes the software giant the exclusive third-party provider of advertising sales for EDGAR’s website. With 2 million unique visitors per month, the ad revenue potential of EDGAR’s website has long been neglected. This relationship should start paying off later this year. As part of the new Microsoft partnership, EDGAR will become a content provider for MSN Money and also provides SEC filings content to both Google Inc. (Nasdaq: GOOG) and Yahoo! Inc. (Nasdaq: YHOO).
The sole Wall Street analyst that still follows EDGAR expects the company to post $21 million in revenue this year and a $0.08 a share loss, followed by $24 million in revenue in 2009 and a penny a share profit. Based on approximately 26.2 million shares outstanding, the $76 million market capitalization name trades for three times expected forward revenue. While this isn’t an inexpensive valuation, with 80%-plus gross margins, a business on the cusp of profitability and XBRL technology adoption serving as a tailwind, a bullish case can certainly be made for EDGAR.
On the flipside, XBRL tailwind and competent new management or not, a recession in the financial markets represents a real risk and could overshadow EDGAR’s turnaround. Further, a faster decline in EDGAR’s legacy subscription business is also a risk. Given these risks, I believe EDGAR (EDGR) is a “value find” only appropriate for medium to higher-risk oriented accounts.
I would consider adding the stock around the $2.50 to $2.75 level and below.
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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Feb 23 01:26pm
One other negative: Helpful update, Matt (I had a value buy on EDGR about 4 years ago). The problem is that the XBRL tailwind won't necessarily accrue to EDGR. They have squandered an huge timing advantage over the year by not really marketing/educating their financial services market (at the expense of corporate). In the meantime, many other providers are entering. EDGRs advantage was compelling (is still): they've tagged most of the public companies. But once the tagging is "open sourced" the value of their tool (including iMetrix) plummets.
Mar 02 08:56pm
Thanks: Thanks for the additional comments and update. Such is the catch 22 I guess of the "open" in open source re: XBRL etc.
Fresh mgmt under Moyer (and new blood on board) could really change things for these guys and early results are positive. That said, their history up until now has certainly been unremarkable given the early first mover advantage they had back in the day and where they are now.
(click a star)
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