Safa Rashtchy on INSP (Thanks to Kenpet 22000 on Yahoo)
Strong Quarter; Concerns On Sustainability
Safa Rashtchy, Senior Research Analyst, 650-838-1347, srashtchy@pjc.com
• Solid Q2 Results. INSP reported revenues of $36.1m, 13% ahead of our estimate of $31.9m and Street consensus of
$31.6m. Cash EPS of $0.05 was well ahead of our ($0.08) estimate and Street consensus of ($0.08).
• Upside Driven By Search. The primary driver to this quarter's revenue and EPS upside was the wireline business, which reported revenues of $16.1m, 20% ahead of our estimate of $13.3m.Wireline revenue grew primarily because of search and paid listings, which grew 40% sequentially and generated approximately 65% of wireline revenue or $10.4m (mostly from Overture, a 10%+ customer of INSP) at a very high margin, which ultimately drove the significant EPS upside.
• Estimate Changes. We are tweaking our 2003 revenue estimates from $137.1m to $139.3m, and increasing our pro forma EPS estimate from ($0.22) to a profit of $0.10, based on the mix shift toward high-margin search revenues. Our
2003 GAAP EPS estimate is ($0.18). • New CEO Takes Over. An encouraging development at INSP is the appointment of a new CEO, Jim Voelker, who is focused on streamlining the business units. As such, we expect at least several quarters of transition with growth levels
uncertain as of yet. This was underscored by the Company giving guidance only for Q1.
• Guidance And Outlook Issues. While INSP's quarter was solid, we believe Q1 guidance of $32.5-$33.5m in revenue and ($0.05)-($0.02) in PF EPS, will not be a strong enough catalyst to drive the stock price significantly above its current levels. In addition, we remain concerned regarding the longer-term growth opportunities of the Company's current
business units, with wireline business potentially losing market share to the larger players and the wireless business
continuing to transition to decreasing revenue streams. We do believe downside risk to the stock is minimal, as the
Company currently has approximately $8.65 per share in cash, and we now project full-year 2003 EBITDA profitability.
• Risk Factors. Risks include attrition of traffic from its Web site, continued operating losses, competition, litigation, and
system security issues. |
