Filtering Out the Noise Around InfoSpace
By Jay Somaney
thestreet.com
After my recent column advising caution about insider selling, I got a ton of emails from readers who love InfoSpace (INSP:Nasdaq - news) and were hopping mad that I highlighted the company's recent insider sales. So, I thought I'd revisit this onetime highflier after earnings were announced.
For the first quarter ended March 31, InfoSpace posted a loss of 2 cents a share, handily beating the expected 4-cent loss. For the same quarter, revenue came in at $46.6 million, up from the previous guidance of $45 million but down 30% on a quarter-over-quarter sequential basis. Compared with the same quarter last year, the company managed to show a 20% increase on the revenue side. Management didn't provide any further revenue guidance for the rest of the year but referred to previous guidance in February. The company expects full-year revenue to come in at $215 million. Current earnings estimates predict a loss of 2 cents a share for the second quarter and a loss of 5 cents a share for fiscal year 2001.
Targeted Growth Areas
After last year's disastrous acquisition of Go2Net, Chairman Naveen Jain and company are betting on two white-hot areas of growth for the company: merchant and wireless services. The company saw very strong growth across both categories and expects the growth to pick up even further as adoption rates for wireless applications and services continue to increase. As of the end of the first quarter, InfoSpace had a subscriber base of 2 million users for its wireless services. InfoSpace sees revenue of $1 to $2 a month per subscriber and is forecasting an increase in that base to more than 5 million subscribers by the end of 2001.
The company ended the first quarter with more than $450 million in cash, cash equivalents and investments with no debt. InfoSpace ended the first quarter with approximately $1.40 a share in cash. One area of concern was that the company saw losses of just a shade under $48 million in its venture capital arm and from investment losses and impairments.
Future Potential
InfoSpace has the potential to become a dominant player in the wireless-transaction and content-distribution arenas. Its shares hit a low of $1.56 April 4, and they were lately changing hands at $4.17. That's a gain of more than 166% in three weeks.
Here's how I would play InfoSpace, assuming I had no current exposure (long or short), which I do not. I would buy a third of my InfoSpace allocation sometime Thursday and wait for a pullback to add to that position.
From a longer-term perspective, this stock will more than likely go higher. However, the near-term possibility of going lower is also very real, especially given the run-up of the past few weeks. So for now, let's call InfoSpace a tepid buy at these levels.
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Jay M. Somaney is the portfolio manager of the TSG Tech Fund, a hedge fund focused on the shares of companies involved in the Internet and related technology. At the time of publication, neither Somaney nor the TSG Tech Fund held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback and invites you to send any to rheas1@msn.com. |
