Find Internet Value at US SEARCH
individualinvestor.com
Research Analyst: Justin Oppelaar (3/29/00)
Suppose you're the human resources manager of a big tech company, desperate to hire
fresh talent to fuel your business. One day, you happen upon a skilled young
programmer with an impeccable resume, and you snap her up immediately.
But five months later, you find out she never went to MIT like her resume claims, or
worse, she's been convicted of computer fraud in five states, and you have to fire her on
the spot, swallowing all the recruiting expenses you incurred.
Like this Article?
How could you have avoided this disaster? US SEARCH.com Inc. (NASDAQ: SRCH -
Quotes, News, Boards) believes it has a solution, and ? surprise, surprise ? it's
Internet-based.
US SEARCH operates a service, both over the Internet and via telephone, whereby
clients can get all sorts of public record information about individuals all over the United
States ? for a fee, of course.
The company offers access to data such as addresses, names and known aliases,
phone numbers, property ownership, and dates of birth and death. US Search also
provides information on all sorts of public court records nationwide, including records of
court proceedings, civil judgements, and even criminal convictions.
Originally, US Search set out to sell these services primarily to consumers directly, with
clients like individuals seeking out a lost friend or family member. Indeed, a major portion
of the company's business is still in consumer services like adoption and school class
reunions.
However, the operation that holds the most promise for US Search going forward is its
line of data services for business. The company operates an extensive database of
records on both individuals and businesses. Business clients can search for everything
from whether a day care center is properly licensed by the government, to records of
personal bankruptcies and tax liens.
The capability to search through those data has drawn more than 1,400 corporate
accounts as of the end of the 1999, according to a February 4 research note by
Robertson Stephens analyst Lowell J. Singer. That's up from 930 at the end of the third
quarter and a mere 500 at the end of the second quarter. And US Search is signing over
150 new accounts each month on average, the analyst added.
US Search is not yet profitable, meaning that client growth is crucial for the company to
gain economies of scale in its business-to-business division. As the company grows, it
can leverage costs over a wider base of users, thereby moving the bottom line ever closer
to positive territory.
While US Search has managed to grow its business at a stunning rate in the past
several quarters, its performance has not been immune to a few speed bumps along the
way.
In its fourth-quarter earnings release, for example, the company's bottom line came in a
penny ahead of plan at a loss of $0.36 a share, but revenue was slightly lower than Wall
Street had anticipated. That sent the stock skidding from roughly $9.00 to around $4.50.
It has since recovered partly and is trading at a recent $5.13.
The downturn left US Search shares trading at less than four times trailing twelve months'
sales and about 2.7 times book value ? astoundingly cheap for an Internet company
that's grown sales over 200% in the last year and has an estimated five-year growth rate
of 50%.
What's more, US Search's balance sheet is clean as a whistle: the company had $24.7
million in cash on its books as of September 30 and long-term debt of $72,000 - less
than most medical students.
US Search has parlayed a great idea into some stellar revenue expansion, but it is still
going through some growing pains, which are showing on the profit and loss statement.
The primary risk for investors right now is management's ability to manage growth and
keep revenue gains coming smoothly.
The company's record so far is somewhat erratic, but the two analysts covering the
company have stuck by their 2000 revenue estimates, despite the fourth-quarter hiccup.
In addition, the company has taken its fair share of punishment - and then some ? for
lumpiness in its results.
Bottom Line:
The stock, however, looks cheap, relative to both the company's current financial
position and its potential for future growth. |
