The question is whether this stock is undervalued at $3.5 per share? INSP has about $575 mil in cash and investments, which is about $1.8 per share. Then, is the business worth $1.7 per share, i.e., $540 mil?
INSP was expecting $310 mil revenue in 2001, until the CC in January, when they could commit only to the lowest number of $215 mil. Their cost of operations is about $195 mil, and gross margin 82%. This means any revenues coming above $195 is almost purely profits. At a minimum, their profits in 2001 will be $20 mil, as per their minimum expectation stated in their Feb CC. But, with the new contracts, they may mop up another $50 mil in revenues and about $45 mil profits as per my expectation. If they make $65 mil in profits, that will be 20c per share, which with a P/E of 20 should value the business at $4.0 per share. With cash of 1.8, the fair price should be $5.8 per share as per my expectation. Last Friday's Wallstreetcity report states that NJ now expects $300-310 mil in revenue in 2001; I think it is fluke (a misreporting), but, if true, the profits will be much higher.
Other important factors include the following:
(i) There is no company, other than INSP, that generates profits from delivery of nonproprietary information (am I correct?). Even Yahoo! disseminates free information to remain the most popular site and, thereby, attract advertisement revenues. But, it expects a drastic (25%) reduction (from the expected level of $240 mil) in its revenues this quarter. This means perhaps a decay in the internet advertisement model based on free information. How is then INSP making profits? It is because INSP's delivery of fully integrated real-time content to all platforms cannot be easily copied (as it is intellectually very expensive). INSP's customers are profiting from INSP's content service and so are willing to install its platforms and share a part of their sales so generated.
(ii) Yahoo! is planning to charge fees; but this will reduce the frequency of hits, which will decrease its advertisement revenues. In the mean while, InfoSpace is building its brand within other brands (like Intel inside every PC). This may mean that InfoSpace may be an acquisition target of Yahoo!, AOL, or Microsoft, and may even be wireless careers.
(iii) Though OPWV and CMVT may be building wireless content delivery platforms, they are way behind INSP in incorporating voice or content generation and delivery. In wireless, the future seems to be voice because the small screens in wireless sets will have less capability to carry the same content as on a PC screen. Thus, in future, Telcos will gravitate towards platforms that have voice capability.
(iv) Horowitz wanted and tried to be the CEO of INSP. Thus, even to an ex-insider "skeptic" (as he sold his INSP stake) INSP's future must be OK.
The market for tech stocks looks very grim and finding a company with potential growth in revenues and profits is not easy. Whether or not INSP will be such a company (I believe it to be one) will only be known in course of time.
[These are purely my observations. Although I struggle hard to be as objective as possible, I would rather that no one bases his/her trades on my posts.] |
