A 13G filed with the SEC has reported that billionaire Steve Cohen’s SAC Capital Advisors owns 2.6 million shares of WebMD Health Corp. (NASDAQ:WBMD), giving it 5.2% of the total shares outstanding of the $1.5 billion market cap health information website. We can see from our database of 13F filings (which we track as part of our research on investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) that SAC had only about 90,000 shares of WebMD Health Corp. (NASDAQ:WBMD) in its portfolio at the end of March (see more stocks SAC owned).
WebMD Health Corp. (NASDAQ:WBMD)’s revenue grew by 5% in its last quarterly report compared to the first quarter of 2012, with the company attributing much of this growth to advertising revenue on its public portals. While costs were still high enough that the business experienced a net loss, this loss was much lower than it had been in the prior year period. In addition, WebMD generally considers its business to be seasonally weaker earlier in the year due to trends in advertising. The company recently raised its guidance for Q2 results and now expects to have earned 5 cents per share for the quarter rather than a small net loss; this would be the first profitable quarter for WebMD Health Corp. (NASDAQ:WBMD) in adjusted earnings terms for some time.
The stock’s valuation, however, already assumes significant improvements in the business for the future. Current consensus is for 22 cents in earnings per share this year, which would mean an average of 10 cents of EPS for each of the next two quarters. Then WebMD Health Corp. (NASDAQ:WBMD) is expected to earn 36 cents per share for 2014, and even if the company hits its target that results in a very high forward earnings multiple. That seems like an aggressive market price for a business dependent on advertising revenue. Billionaire Carl Icahn has been another major investor in WebMD, with his group’s 13F reporting a position of 6.7 million shares (find Icahn’s favorite stocks).
It’s most relevant to compare WebMD Health Corp. (NASDAQ:WBMD) to other online sources of on-demand information. These would include Yelp Inc (NYSE:YELP), Angie’s List Inc (NASDAQ:ANGI), Bankrate Inc (NYSE:RATE), and Tripadvisor Inc (NASDAQ:TRIP). Yelp and Angie’s List are also unprofitable on a trailing basis, and similarly to WebMD while the sell-side is predicting that they will soon break into the black earning are still expected to be quite low in 2014 relative to their current valuations.