Facebook Inc (FB), Groupon Inc (GRPN): The Problem with WebMD Health Corp. (WBMD)

WebMD Health Corp. (NASDAQ:WBMD) is a health information service best known for its website of the same name.  This company has been very popular lately, with visits up nearly 50% in the last month.  Yet this company has a serious problem.  I believe Jim Cramer said it best: “This is

WebMD Health Corp. (NASDAQ:WBMD)

expensive, and it doesn’t make a lot of money.

As an investor, I am very interested in the bottom line.  Sometimes the bottom line is good.  That makes me happy.  Sometimes thebottom line is bad.  I want to know how it is going to get better.

So what is going on with WebMD Health Corp. (NASDAQ:WBMD)?

The Money

Perhaps we should start by asking ourselves the question, “how does WebMD Health Corp. (NASDAQ:WBMD) make money?”

The main source of revenue for WebMD is through advertising.  Several companies, especially pharmaceutical companies, pay to advertise on their websites, and in other publications, such as WebMD’s magazine.

WebMD also creates revenue through products such as health related content for individuals, and technology for people like doctors.  However, these sources of revenue pale in comparison to the revenue created through advertisements.

By deriving the majority of their revenue through advertising, a comparison could be made with Facebook Inc (NASDAQ:FB).  Facebook made 84% of their money in their most recent quarter through advertising.  Total ad revenue was $1.33 billion, an increase of 41%.  But while Facebook Inc (NASDAQ:FB) has been growing revenue, WebMD Health Corp. (NASDAQ:WBMD) has been losing it.

WBMD Revenue TTM data by YCharts

What is interesting is web traffic has been growing for WebMD.  “In 2012, The WebMD Health (NASDAQ:WBMD) Network reached an average of approximately 110 million monthly unique visitors and delivered approximately 10.16 billion page views during the year, increases of 29% and 26% over the prior year, respectively” (annual report).  Now, normally you would expect more web traffic to grow into greater revenue.  But WebMD has been noticing a shift in internet usage.  They say that 1 out of 4 users are accessing their information with mobile devices.

Groupon Inc (NASDAQ:GRPN) has noticed this major shift as well.  In 2012 mobile internet access to Groupon Inc (NASDAQ:GRPNincreased 40%.  Groupon’s revenue comes from agreements with business.  Groupon Inc (NASDAQ:GRPN) promotes a deal, and if the consumer takes advantage of the deal, Groupon Inc (NASDAQ:GRPN) makes a certain percentage.  This increase in mobile activity is no threat to their business.  They have apps to get the deal information out there.