ACOM Third Quarter Results

Ancestry.com posted 3rd quarter results after the bell.  Revenues were in line and earnings per share exceeded analyst estimates by .05 cents to .40 versus the .35 estimate.  The company achieved bottom line by recording a very low G&A of just 9.5% of revenue, and a lower tax rate, ( the lowest in the last two years).
I previously wrote about ACOM's 2nd quarter results here ACOM Results.  My biggest concern for the stock in the near term was the sequential drop off in subscriber growth rate, which I posted below.
2010
14.00%, 8.00%, 5.00%, 1.30%.
2011
15.77%, 3.52%, 1.67%, 1.17%
The current guidance for sequential subscriber growth rates now looks like this.
2011
15.77%, 3.52%, 1.73%, -.65%
These subscriber numbers are not surprising, and actually I expected a marginal drop off due to a very challenging environment.
VALUATION:
Attractive at these price levels.  I just reviewed NFLX and AMZN results the last couple of days.  Those results compared to ACOM look terrible and the stocks are still overvalued even after their selloffs.  I have ACOM trading at a forward P/E ratio of 12.78, which is the lowest this stock has seen in the last two years. I have a price target in the 40's.
TECHNICALS:
ACOM has shown support in the low 20's area over the last six weeks time period.  Below is a weekly chart of ACOM.  The stock is very over sold on a weekly basis.  

Bottom Line:  Although the company achieved bottom line results by managing a lower G&A line and tax rate, these results are good comparatively to other consumer oriented stocks, and I believe the stock has already discounted the subscriber drop off rates going forward.  The company has announced a 50 million dollar share buyback also, and could seek an existing credit facility for the buyback.  The company had cash of around 46 million, end third quarter. Buying in the low 20's makes sense if you plan on holding the shares for a while.  

Contact: 586-431-8000

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 

ACOM Results

ACOM (Ancestry.com) reported fourth quarter earnings and gave guidance after the close today.  The report was better than I expected on several fronts and the stock was higher in after hours.

• Sequential subscriber numbers are estimated to increased by 10.75% in the first quarter of 2011 vs. recent quarter.
• Churn rate was 3.9% vs. prior September quarter of 4.0%.
• First quarter guidance was above estimates 86M to 88M vs. analyst guidance of 81M.
• ACOM expects 2011 total revenue at 372M vs. analyst estimates of 357M.
• The company expects 2011 full year subscribers to total 1.7M by the end of 2011, an annual increase of 22 %.
• 2011 revenue growth of 23% and earnings growth of 40% are solid numbers.

On a subscriber model comparison basis, I have ACOM trading at a forward 2012 p/e ratio of 21.29 vs. NFLX at 35.61, so at present prices ACOM is a good value.  Below is a chart of ACOM which has good support at the 50 day moving average, green line.

Bottom Line:  ACOM had a good fourth quarter report and guided revenues higher for the first quarter of 2011 and entire year.

Contact:  586-431-8000