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.
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.
As a result, each is a popular short target: 16% of Yelp’s float is held short, and the same figure is 30% for Angie’s List. Yelp has been growing its business quite rapidly, with revenue up 69% in the first quarter of 2013 versus a year earlier, though adjusted EPS has actually been falling on a q/q basis. Angie’s List has seen its stock price rise over 80% in the last year, as it too has been seeing revenue growth of close to 70%.
Bankrate and TripAdvisor are at least profitable, though they too are highly dependent on improving their businesses in the future: their respective forward earnings multiples (which themselves incorporate expectations of significant EPS growth next year) are 24 and 28 respectively. We’d warn investors that Bankrate actually experienced double-digit percentage declines on both top and bottom lines in its most recent quarterly report compared to the same period in the previous fiscal year, which should prevent anyone from buying it as a potential growth stock for now. The online travel industry has been experiencing high growth recently, and TripAdvisor is no exception with revenue and profits growth of 25% or higher. However, its trailing P/E of 42 represents a premium to those industry peers more focused on reservations and so it might be worth looking into those stocks instead.
Markets are being quite aggressive- probably even speculative- in their valuations for WebMD and for many of its peers. It’s good that the company apparently turned a profit last quarter but even analyst forecasts set a high bar for further improvement and we don’t find a stock with a forward P/E of over 80 that attractive, even if Cohen and his team like the stock. A similar logic holds for Yelp and Angie’s List, and as we’ve discussed Bankrate has not been doing well recently and TripAdvisor doesn’t seem that appealing compared to other travel related companies.
Disclosure: I own no shares of any stocks mentioned in this article.
