Internet Stocks: WebMD, Shutterfly, Monster and Netflix

Yesterday’s analysis of ZipRealty, MOVE and Blue Nile showed that even though there’s no doubt the global financial crisis is hurting online commerce across industries, it’s not all bad news. The recently announced Q3 results of some of my other favorite Internet companies are further evidence that while revenues are often lower than expected and stock prices are down, with the help of site improvements and partnerships, there are Internet companies that are growing. Here is a quick look at a few of these stocks.

WebMD has been on a growth curve for the past few quarters, and they continued to beat many of the Street’s expectations in their recently announced Q3 results.

Q3 revenues of $100.4 million were in line with the Street’s expectations and represented annual growth of 15%. EPS of $0.18 beat the market’s expectations of $0.16 though were down one cent over the previous year.

By segment, advertising and sponsorship revenue increased 22% to $72 million, private portal licensing revenue increased 11% to $22.1 million and publishing and other revenue decreased 11% to 5.8 million.

For Q4, WebMD is looking at revenues of $104-$108 million with net income of $0.16-$0.19 per share. They gave a preliminary outlook of revenues of $420-$450 million for the year 2009 with EBITDA growth of 13%-31% in the period.

Their Medcenter tie-up continued to prove beneficial, as they registered more than 90,000 physicians on their Medscape international site.

Their Physicians Connect platform continued to grow, with over 65,000 physicians now registered on the site. Online continuing medical education on their professional sites grew by 76% over the year to cross 1.3 million completed programs in the quarter. Traffic on their health network grew by 22% over the year to reach an average 49.9 million unique users per month, with page views growing by 33% to 1.14 billion.

A consumer study from the Hartman Group confirmed that WebMD was the most visited health site among the Internet health information users.

During the third quarter, the company experienced a significant increase in sales for online promotion and education programs directed at both consumers and healthcare professionals in the biopharma and CPG markets. Given that biopharma customers have to spend their marketing budgets quickly due to the short lives of patents, they saw biopharma and CPG customers beginning to transition their DTC television and print budgets to online avenues.

The company launched a WebMD provider selection advisor for the Blue Cross/Blue Shield association that will help members select hospitals, physicians and other providers participating in networks that serve their local area based on location, specialty and hospital affiliation, in addition to medical education and accreditation. The association covers over 100 million people; access to this new market segment adds to my belief of growth for WebMD ahead. 

Despite a solid performance on all fronts, the stock slipped to an all-time low of $13.67 earlier last month. It has recovered since and is trading at $21.84.

Shutterfly (SFLY), the online photo-sharing company, reported Q3 revenues of $36.0 million, beating the market’s expectations of $34.0 million and representing 10% growth. They recorded a loss of $0.11 per share, beating the Street’s expectations of a loss of $0.23 per share. The previous year, the loss was $0.14 per share.

By segment, revenue from Prints declined to 8% over the year while Personalized Products and Services increased 32%.

During the quarter, they had 916,000 customers transacting through their site, resulting in 1.7 million orders with average order value growth of 11% to $21.71. This is despite Shutterfly’s lowering the price on their highest selling 4×6 prints.

For Q4, they are expecting revenues of $89-$104 million with 7% growth over the year and non-GAAP EPS of $0.45-$0.68. They are expecting to close the fiscal with revenues of $195-$210 million, representing growth of 4%-12%, with non-GAAP EPS of $0.13-$0.36.

Shutterfly continued to add to the features for the personal publishing platform they wish to create. They improved Storyboard, a tool that enables users to build pages quicker with more dynamic layouts. They added help functionality to their greeting card and designer card lines, which will help users find the type of card and the design best suited for their needs more easily. They also extended their technology to large-sized posters and signed new content licenses for use of characters and movies like Hannah Montana, High School Musical, Transformers, Disney’s Princesses, Winnie the Pooh, Mickey Mouse and Tinkerbell.

Not all improvements were internal; they launched Share 2.0, which combines photo sharing with blogging, self-publishing and social networking sites. They also tied up with Gruppo to utilize that company’s expertise in packaging and direct mail campaigns for Fortune 1000 companies. Through this tie-up, Shutterfly expects to address large advertisers who want increased personalization of their collateral.

The stock is currently trading at $7.16, after having risen from an all-time low of $6.25 earlier last month. At the current market cap of $180 million, the stock remains a good acquisition target especially for Yahoo!.

Job portal Monster’s (MWW) Q3 revenues of $332 million dropped by 1% over the year and missed the market’s expectations of $336 million. EPS of $0.40 exceeded the Street’s views of $0.34 and grew by 14% over the year.

In response to the global recession, Monster has been focusing on realigning themselves by global function to cut on operating expenses. They claim to have saved $100 million in the year through this realignment. They also launched their biggest product investment and rebranding initiative to date, expected to be completed by 2009. The company expects the new platform to be able to help employers with tools to find the most qualified employee through improved search technology. The search will change from a simple key word search to a contextual search taking into account a candidate’s skills, years of experience, education and other relative career attributes.

They continued to improve their customer service by investing in facilities in Florence, South Carolina, and Bruno, Czech Republic.

International revenues grew by 17% to $142 million while North American career revenues declined by 12% over the year.

Monster added digital cable and high-speed Internet provider Comcast to their list of strategic alliances. Comcast will be an exclusive job partner for Monster’s signature on-demand service. All of Comcast’s users will have access to employment resources through their remote controls.

Monster said that although the recession was having an impact on them, they were confident of retaining and growing their market share. They expect that even though customers will be laying off employees in some geographies or functions, they will still be hiring in others. Additionally, Monster expects increased opportunity given that their online model is one of the more cost-effective ways to recruit.

The stock is currently trading at $6.62.

Netflix’s (NFLX) Q3 revenues of $341 million were shy of the market’s expectations of $343 million, although they represented 16% y-o-y  growth. EPS for the quarter of $0.36 exceeded the Street’s expectations of $0.34 and represented growth of 38%.

During the quarter, they added 261,000 subscribers, a 23% annualized increase, taking their total user base to 8.7 million. They continued to add content from Star, CBS, and the Disney Channel.

Their alliance with LG continued to be fruitful; LG’s newly-launched Blu-Ray player includes instant streaming from Netflix. Their partnership with Microsoft’s Xbox, announced last quarter, is also adding to Netflix’s user base. Microsoft is expected to come up with a free upgrade for the Xbox 360 that will include instant streaming from Netflix.

Netflix also announced plans to launch the roll-out of their second generation player software, which will run on both Windows and Intel Macs. Additionally, they tied up with Starz to distribute their play content. Starz is a subscription content wholesaler that operates a direct-to-consumer extension called Vongo, which they have decided to close.

The stock is currently trading at $21.53 after having slipped to a new 52-week low of $17.90. I would not be surprised if Microsoft acquires Netflix next year, especially if the Xbox partnership is a success. After all, Reed Hastings sits on Microsoft’s Board.
 

This segment is a part in the series : Internet Stocks