More from the Epoch Partners report:
Our Take: In light of recent earnings disappointments in the technology industry, InfoSpace reiterated its guidance for fourth-quarter revenues of $66 million and pro forma net income of $4.9 million. Therefore, we are very comfortable with our revenue estimate of $65.8 million and net income of $5.1 million. We believe that the company's consumer and merchant business segments will drive the majority of revenues as they accounted for an estimated 59% and 29% of third quarter total revenues, respectively. We estimate that InfoSpace will add 64 consumer affiliates in the quarter, bringing the total to 3,264. We think this could be an area for concern because the company might have lost some lower-tier customers to the dot-com shakeout. Offsetting this concern, our internal calculations from the third-quarter sales lead us to believe the average monthly fee for consumer affiliate sites is closer to $3,700 per month, higher than the company's guidance of $3,500. We expect merchant customers will end the quarter at 2.1 million and generate $19.3 million in fourth-quarter revenue.
On the wireless side, we think that the management's year-end goal of 1 million wireless data subscribers is in the bag based on positive fourth-quarter results from Verizon, InfoSpace's largest wireless customer. Verizon's CDMA wireless data subscribers jumped by 200,000 in its latest quarter. By our estimates this brings InfoSpace to 1 million subscribers and accounts for 40% of our estimated quarterly increase of 450,000 subs. We expect that the recent additions of new companies such as IQorder will provide downward pressure on gross margins and come in at 81% and that added costs will reduce EBITA margins to 2.0%, down from 5.2% in the September quarter.
The key to the earnings call will be forward guidance for 2001. Our revenue estimate is $346.5 million compared to previous management guidance of $360 million. We have put in a small buffer between our estimate and management's guidance due to the potential impact of the dot-com advertising downturn. InfoSpace's 3,200 consumer affiliates are Internet media and e-commerce websites that rely on advertising and e-commerce dollars for revenues. InfoSpace generates revenue from these customers in the form of advertising as well as subscription fees, fixed placement fees, and hosting revenues. We believe that advertising revenues represent 15%-20% of InfoSpace's total revenues. We have recently seen ad-supported Internet stocks like Yahoo significantly lower expectations for 2001 advertising revenues. InfoSpace has strong media companies amongst its consumer affiliate customers. Given the size of the consumer affiliate base, however, we think it is reasonable that there could be some companies that have been dropped. Our model calls for the number of net consumer affiliate additions to increase at a 2% sequential growth in each quarter of 2001.
Bottom Line: At these levels, we believe that InfoSpace offers a strong long-term buying opportunity. We see announcements in the wireless segment as the short-term catalysts for the stock. Long-term, we continue to believe InfoSpace offers investors an opportunity to invest in the wireless data sector with the downside protection of a profitable Internet infrastructure service firm. |
