Internet Brands: A step in a different direction

Paul Rolfes | Aug 26, 2008 6:20am EDT | Comment

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Spinning an identity and driving traffic at one website is difficult enough for many companies, but Internet Brands (Nasdaq:INET) finds security in numbers.

The El Segundo, Calif., company squeezes value out of underutilized websites. Internet Brands has been public for less than a year, with its stock bouncing around November’s lowered IPO price of $8, a starting point for the 48 million shares that was one-third less than the company’s stated expectations of $12.

Two analysts surveyed by Thomson Reuters have Internet Brands as a “buy” or “strong buy,” and believe shares will rise; their median price target is $12.

Shares hit an intraday high of $9.44 on Feb. 7, but sank to $5.37 on July 30, ahead of Internet Brands’ reporting of second-quarter results. On Monday, Internet Brands closed at $6.91.

Internet Brands is a media company operating in the new age of consumer-driven content. While the business models of search engines such as Google (Nasdaq:GOOG) or Yahoo! (Nasdaq:YHOO) reach out on a horizontal plane, Internet Brands is a vertical Web proprietor, drilling down to specific consumer needs and interests.

Many of Internet Brands’ sites were acquired over the past few years and fall into five categories: automotive, travel and leisure, shopping and consumer electronics, home and employment. Its network includes autos.com and apartmentratings.com, along with others that deliver electronic coupons to savvy shoppers, or help freelancers and stay-at-home moms find work. Shopping and employment are recent additions, and management has indicated that it might enter another vertical next year.

Jefferies & Co. analyst Youssef Squali calls the Internet Brands strategy of aggregating the highly fragmented businesses “compelling.” He maintained a “buy” rating with a $10 price target in an Aug. 7 research note.

Ten years ago, Internet Brands sprang to life — known at that time as CarsDirect.com, a website providing shoppers a place to wheel and deal with dealers. In 2004, CarsDirect began to accumulate non-automotive sites in mortgage and travel, and the following year took on its current name.

Rapid expansion at Internet Brands has corralled some 200 websites, of which 76 are principal sites attracting 100,000 or more unique visitors each month; many have substantial user communities. Last year, Internet Brands acquired 45 sites, and during the first half of 2008 added 21 more, including nine in the April through June quarter.

As of June 30, Internet Brands reported 37.3 million monthly unique visitors, up 52% from the same point in 2007, as total page views more than doubled to 620.4 million.

“The audience growth continues to exceed our plans,” Bob Brisco, the Internet Brands CEO for nine years, said during an Aug. 6 conference call with analysts.

Unlike many U.S. businesses, Brisco feels confident that Internet Brands has some visibility into the future direction of his media network, and this month reaffirmed previous 2008 guidance, while raising the bottom limits of its ranges to $104 million to $110 million in revenue and of $33 million to $36 million for EBITDA.

As of June 30, the company reported having no debt and $58.5 million in cash — providing a healthy war chest for acquisitions. It spent $49.2 million for its first-half purchases.

Despite the weak economy, consumers are relying more on the Internet to meet their shopping and socializing desires, and those looking for bargains — or new careers — might find fulfillment at an Internet Brands property.