|Shares Out. (in M):||41||P/E||44x||26x|
|Market Cap (in $M):||1,460||P/FCF||22.0x||18.0x|
|Net Debt (in $M):||120||EBIT||0||0|
Sign up for free guest access to view investment idea with a 45 days delay.
I believe WBMD offers a compelling opportunity on the short side given the recent recovery in the shares.
Among many other things to be discussed later, I believe the insiders are sharing a bit of insight into what they think about the future of the company is given their recent activity. First, there was the tender offer, where the company offered to retire ~10% of the company's shares outstanding for $34 (a price higher than it had traded since early 2012). The company does this from time-to-time, so one might wonder whether it really matters...then the results came in. Four directors tendered anywhere from 56% to 96% of their stakes and the ever-bullish chairman tendered 86% of his shares. Carl Icahn (arguably the hottest investor in the world right now) also tendered his entire stake and Kensico (2nd largest shareholder and holds a board seat) tendered almost 2/3 of their stake.
That seems like a lot of people "in-the-know" that are trying to get rid of a large chunk of their shares. The counterargument is that since it's a tender offer for only 10% of the shares, it's inevitable that folks will want to cash in a bit at a premium, which requires tendering much more than they intend on actually selling since it's unlikely that their entire order would be filled...and this is exactly what happened...only ~18% of any given shareholder's tender was realized. I would definitely heed this argument and discount this insider selling if it weren't for the fact that insiders (including the Chairman) were selling during the tender period and have continued to sell after the tender period. And probably more important is the fact that Icahn decided to dump the remainder of his shares about a month later at a lower price ($32.08) in a block trade to the company. Icahn was a 12% owner prior to the tender and a 10% holder after. He also held a board seat up until August of this year, so I'm fairly confident that he was at least somewhat aware of the operations of the company. The remaining shareholders were awarded with a 10% jump in the share price b/c the company orchestrated this sale in a fairly clean manner, by buying the stock back directly.
So what? The stock is +150% on the year and Icahn is taking his gains and moving on, similar to what he did with NFLX. I've heard this argument, but believe it is somewhat of a short-sighted point of view. If you look at when he actually built his position in the name and the transformation of the company since then, the sale makes a bit more sense. He built his position starting in Q311 through Q112 at stock prices in the $25-$45 range. Analyzing this and assuming he traded it 100% perfectly (unlikely), his average cost could have been no lower than $27-28. He then sold for an average of ~$32.50 two years later, for a whopping 17% gain (at the very best...though I've actually heard he was flat or lost money on the position). Correct me if I'm wrong, but most activist investors don't generally accrue a sizable position in a company over a multi-quarter period and lobby for a board seat with the hopes of compounding <10% and selling in under two years. It seems like something changed his opinion of what the company is worth over that timeframe and I think he's thanking his lucky stars that the stock rebounded as it did off the bottom.
Of course what happened during that timeframe is the stock dropped into the low-teens as the business performed horribly and it has since rebounded a bit. The argument I'm making is that the company may actually be facing stiffer headwinds in the next two years than it did in 2012 that caused a 75% reduction in the stock price from its peak, and I'm thinking Uncle Carl sees that and is trying to get out while he can...especially with FY14 guidance coming up in February. Mind you, the market seems completely oblivious to these risks and is instead rewarding the company for cashing out its insiders at an expensive stock price using the company's capital.
Taking a step back...
What they do:
WBMD operates several health-focused websites for consumers (www.webmd.com, www.rxlist.com, etc.) and professionals (www.medscape.com, www.theheart.org, etc.), which are designed for CME (continuing medical education) for medical professionals. They also work with employers to create private benefits management portals. They derive most of their revenues (~60%) from consumer display advertising, mostly by large pharma companies advertising their blockbuster drugs, while the remaining 40% is split fairly evenly between professional sites and private portals. The company creates some original content, but mostly obtains its website content from other trusted sources. WBMD is headquartered in New York, NY.
WBMD for many years has been one of the main sources of internet-based health-related information for consumers, hence was an increasingly important destination for direct-to-consumer advertising for big pharma. This, combined with a significant number of “blockbuster” drugs developed in the 90’s made way for significant growth for the internet property over the first decade of the 2000’s. However, over the last couple years, growth slowed from solid double digits to single digits in 2011 and negative in 2012. Additionally, it appears that big pharma has soured a bit on direct-to-consumer advertising and that most of the shift to internet display advertising has already occurred, hence WBMD has become more subject to the cyclicality of the market (hence the drop in 2012 revenues).
More recently, in Q412, WBMD adjusted their pricing to be more amenable to the market environment. While they haven't been completely clear about the changes they made, we believe that they’ve unbundled their pricing and are providing advertisers with more cooperative terms. They’ve since seen their revenues rebound from a cyclical low in 2012 as advertisers seem to have returned to the platform a bit.
Going forward, there are a number of challenges that WBMD will face and growth will be much harder to come by than the market assumes. These challenges include:
Given the company’s large fixed cost base and focus on driving growth (keeping those costs high), these challenges are likely to wreak havoc on the company’s margins and EPS, yet the market continues to apply a sizable growth multiple to this company when the reality is it will look more like a cyclical, old media company.
|show sort by|
Are you sure you want to close this position WEBMD HEALTH CORP?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea WEBMD HEALTH CORP for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
Apply for or reactivate your full membership
You can apply for full membership by submitting an investment idea of your own. Or if you are in reactivation status, you need to reactivate your full membership.
What is wrong with message, "".