ACOM Second Quarter Results

Ancestry.com, (ACOM) posted second quarter results after the close yesterday.  They posted a modest top and bottom beat for the quarter, and guided modestly higher for the third quarter and year end revenues.  If there was a red flag with the results it would have to be the slower rate of subscriber growth estimated by the company through year end.  I'll touch later on that. Also, average cost per subscriber increased 10% sequentially to $81.73 from $74.04.  Churn increased to 4.6%, which is similar to the 2nd quarter churn increase in 2010, and that was expected.
Comparing sequential (q to q) subscriber growth rate of 2010 against 2011 you get these numbers:
2010
14.00%, 8.00%, 5.00%, 1.30%.
2011
15.77%, 3.52%, 1.67%, 1.17%
Notice the sequential drop off from a year earlier, there lies the issue and the sell off.  Granted the first quarter had a huge increase of 15.77%.
VALUATION:
Selling in the mid thirty range ACOM is selling at a discount to my price target of $46.00, and is selling at its prior forward p/e ratio of 22.23, similar to what I estimated after its fourth quarter results here ACOM Results.  ACOM also sells at a discount to NFLX which sports a forward p/e ratio of 39.12.
TECHNICALS:
The stock fell through the 50 dma with little effort and is testing the 200 dma today.  There is some support at around 34.50 area as shown below on a daily chart.  But technically, in the short term this is a broken stock.

Let's take a look at the weekly chart to get a longer term view.  Below the weekly chart shows strong support at around the 30.00 dollar level.

Bottom Line:  Am I a buyer here?  Maybe, in the low thirties for a longer term play, allocated properly in the portfolio.  The overall market first has to figure out the direction that it wants to go.  Another words, a healthy market will reward risk taking with growth stocks.  A market correction obviously will not. Thank you for reading 

Fibonacci Retracements Levels

Another tool I occasionally use is Fibonacci retracement levels.  Stocks or major indexes will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at three levels: 38.2%, 50%, and 61.8%. Actually, the 50% level really does not have anything to do with Fibonacci, but traders use this level because of the tendency of stocks to reverse after retracing half of the previous move. So what do the fibs say about our stock market in the near term?  Below is a chart of the S&P 500 with Fibonacci levels drawn over the chart. 

As seen above, stocks have retraced down to the 50% level and bounced higher off that level. Stocks could also be putting in a higher low if that is indeed the pullback level before moving higher.  The week ahead is important with many earnings reports being announced.  AAPL on Tuesday, and INTC on Wednesday and MSFT will report on Thursday.
 

Bottom Line:  This week will determine the near term direction of the market.  If using just Fibonacci retracement levels then we have to give a move up for stocks the benefit of the doubt, as they hit the 50% retrace and moved higher. A break below that 50% line then the 61.8% level becomes the next area of support. 

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