Do You Think MCHX Is A Good Buy?

[billinchina]

I noticed that Marchex stock (MCHX) has been slammed lately. As of this post, it's trading at $9.49 per share. The price earnings ratio is high. Their Q2 income was 1 cent per share instead of the 11 cents that analysts had expected.

I don't understand the reasoning behind slamming a stock like that. This company is sitting on a money printing machine. They are buying other companies with all the money they print and so investors bail? When they bought Yun Ye's portfolio, it was making $18 million per year on revenue of $20 million. They must have a lot of other goodies because their annual revenue in 2006 was $127 million.

If they decided to stop reinvesting their profits, then money would flow and nearsighted investors would probably love the stock. This kind of company owns some of the best online real estate online and that puts a serious barrier to entry between them and other local search competitors. Forgetting about the cash flow, just think how much their domains are worth in terms of resale value! Their market cap is only around $400 million. They probably own 400 domains worth a million each, not to mention all the other names they own.

So, my question for you is how long do you think they will be on a spending spree and when do you think they will decide to milk their cow and shoot their stock price through the roof?

There is an optimistic volume of March 08 Call options out there in the $10.00 to $15.00 strike price range. You can get March 08 Call options with a $10.00 strike price for $1.20. For example, if you bought $10,000 worth of those and the stock price rose from $9.49 to $12 sometime before March 08, then you'ld turn your $10K into $16K. March 08 isn't too far away though. A three year option would be nice if it existed.

When do you think it will be the right time to pick up this stock? I'm curious to hear your insight.

 

[gazzip]

I'm curious to hear your insight.

I don't know much about it but on Frank Schillings blog he says "If I didn't already own a similar co I would buy this company". you may want to check it out ?

http://frankschilling.typepad.com/my_weblog/

.

 

[yandig]

A lot of investors (myself included) are short-sighted with respect to investments. The current earnings projections for Marchex do not justify the stock price, and that will keep a lot of potential investors out at anything above $10.

If what you say is true, and they do have domain value in excess of their market cap...of course that changes things. If you think that their asset value is vastly understated, then maybe you are on to something.

For myself, I stick to fundamentals, and this stock's financials are saying $7 until further notice.

 

[Spade]

Please correct me if Im wrong, but isnt Marchex's profits, atleast, a lions share coming from TM domain names?

I think with these coalitions being setup between large corps, trying to protect TM infringement, Marchex may very well see some problems down the road. I also have not been overly impressed with their monetization strategy. Sitting on some of those domain names is just a shame. Im sure with proper development on some Marchex could flip itself around...

Is it a good buy? I would call it a risky one.

Justin

 

[yandig]

I take back that $7 figure I mentioned earlier....that was a quick guesstimate of intrinsic value.

I ran MCHX through my stock valuation model, and came up with a value of $9.37 per share. So, it seems pretty fairly valued to me right now.

To find out more about my stock valuation model, visit my Stock Market Blog

 

[Aggro]

Spade has nailed it on some of the business issues


Also, some people should understand the basics of:

a/ income statement

b/ running a business

1/ Hint: COSTS are out of control
Doesn't matter what revs are if there are little profits for S/Hs (see income statement)

They have 283 people...doing god knows what
Just how many people are needed for what is effectively a simple core business..
People talk about how PPC is automated and a scalable business blabla...well MCHX have done the opposite.


2/ Large % of Revenue (and costs) comes from arbitrage

as has been speculated on by a savvy RBC analyst.
means less stable/lower quality of earnings

plus how much costs from arbitrage pertain to the $127 M revs, eh?

Think about it:
Revenue - sure as heck - is not exploding from $18 M (yun ye's time) to $127 M in 2+ yrs solely from growth from PPC ...



That said, it is worth a trade when the base completes (per stock chart)

 

[GeoOwners]

I agree with most points here...lately I've been buying marchex and cnet stock...I'd lean toward cnet just because they make real companies from the domains...they seem to know more about creating sustainable income compared to the arb. thing.

I'll be adding some Iac soon too.

 

[billinchina]

Aside from TM domains, perhaps their generics and non TMs could have an end user market value worth somewhere near $400 million (not that they could liquidate that overnight). I think their CEO is not concerned with the short run and that's why he's pouring all their profits back into the business. Also, 283 people doesn't sound like too many to me for that size of operation. I bet this stock is going to jump up someday. However, the tricky thing is figuring out the timeline that management has in mind for doing this. If we could figure out when they are going to make a few moves to strike it rich, that would be the time to get in on this. It might go down even further for a while, so I'm not sure that now is a good time to buy. Especially if we hit a recession from the housing bust, it could delay their timing for a couple more years. Just my thoughts, maybe I'm wrong.

 

[snoop]

If they decided to stop reinvesting their profits, then money would flow and nearsighted investors would probably love the stock. This kind of company owns some of the best online real estate online and that puts a serious barrier to entry between them and other local search competitors. Forgetting about the cash flow, just think how much their domains are worth in terms of resale value! Their market cap is only around $400 million. They probably own 400 domains worth a million each, not to mention all the other names they own.

I would say the domain portfolio is probably worth around the same as the mkt cap. It is very doubtful though that they own 400 domain worth $1million dollars, the quality isn't that good.

I agree if they stopped reinvesting the profits investors would love the stock, but what is the chance of that happening? I don't think management is going to admit mistake and reduce the staff levels any time soon. In my view the company is being badly mismanaged and that management is adding a large amount of negative value which investors need to factor in. I think their is a good chance of someone buying the company if the stock price keeps dropping, I wouldn't have said this company is cheap at current prices though.

 

[Ronald Regging]

Personally, I think that the domain market is highly undervalued. But as others have stated, who knows when major plays will take place within Marchex, or the general public will catch on to the value of domains. It could be many years down the road and a lot can happen within that time. We're fairly confident in domaining, but at the same time we have to acknowledge that there are many external forces at play within the industry. Politics, technology, public perception, liberalization of TLDs, etc... Who really knows where we'll be in 10 years?

Obviously there is risk involved with any type of investment, which is why it is important to diversify your portfolio. But when you're talking about domain investing and investing in a company that is entirely based on domains, they're basically one in the same. Maybe you divert some of your money away from personal domain investing into Marchex, but if you start extending yourself financially, thinking that one is stock and one is domains and that they're entirely unrelated and diversified, well...

 

[Aggro]

That said, it is worth a trade when the base completes (per stock chart)

Looks like some of you might have missed the 11% pop today after it completed its consolidation base:

$10.54 up+1.03 (10.83%)

 

[billinchina]

Yea, I missed it.

 

[yandig]

Nice jump up today for anyone holding...I should also say that I think that stocks in general are overvalued right now. MCHX sure looks interesting, though.

 

[NameCharger]

To find out more about my stock valuation model, visit my Stock Market Blog

Good site, thanks. :tu:

They have 283 people...doing god knows what

I have been thinking the same thing recently. Anchor text ads relevant to destination URL that gets 600+ visitors within 15 minutes with 0 CTR% has me very curious.

Reviewing the referrer logs makes me even more curious. At least 1 of the "search engines" that was generating traffic was not functional to the general public, requiring login and when user tried to login/register, page not found. Yet somehow this site generates traffic when a specific KW is set over a certain bid.

 

[clocker24]

What really drives a stock price up is investment by big fund managers. Perhaps many of these guys just don't understand domain names and therefore are not investing in Marchex. Buy some out of the money calls for cheap, so if the stock doesn't go anywhere you don't lose much.

 

[floatingworld]

second quarter financials:
note this stock is yo-yo:
On top of the series of announcements, Marchex also had their earnings call on August 9th. When trading resumed the following morning, the stock had fallen by 22% - to $9.00. By the end of the trading day, the stock was trading at $9.47.

Revenue: Marchex anticipates 2007 Revenue of $136 million to $142 million. Adjustments from our prior guidance of $144 million to $150 million are based on:

* a loss of $500,000 in revenue during the second quarter resulting from the datacenter outages;
* a $500,000 anticipated revenue increase from the VoiceStar acquisition;
* a $4 million decrease resulting from an anticipated reduction in Web site marketing;
* a $4 million decrease in revenue based on our increased direct monetization of our proprietary Web sites and impact from Yahoo!’s quality-based pricing initiatives.

Adjusted operating income before amortization: Marchex anticipates 2007 adjusted operating income before amortization of $21 million to $25 million. Adjustments from our prior guidance of $34 million to $38 million are based on:

* a $1.1 million decrease in adjusted operating income before amortization from our second quarter results due to the increased investment in our advertising services platform for local advertisers plus datacenter outage impacts;
* the $4 million increased investment in the accelerated build out of our advertising services platform for local advertisers we provide to partners like AT&T and other aggregator partners, as well as supporting potential new relationships;
* a $3 million investment in accelerating the product and infrastructure build out for VoiceStar, as well as the initial integration with Marchex’s advertising services platform;
* a $1 million decrease resulting from an anticipated reduction in Web site marketing;
* a $4 million decrease based on direct monetization of our proprietary Web sites and impact from Yahoo’s quality-based pricing initiatives.

Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates add-backs of approximately $8 million in additional depreciation and amortization to its adjusted operating income before amortization range, implying an adjusted EBITDA range of $29 million to $33 million. Our prior guidance on add-backs to adjusted operating income before amortization was approximately $7 million in additional depreciation and amortization.

 

[jmcc]

What really drives a stock price up is investment by big fund managers.

The sheep?

Perhaps many of these guys just don't understand domain names and therefore are not investing in Marchex.

Alternatively they may see better investments. The problem with MCHX is that it is not exactly built on solid foundations and is extraordinarily vulnerable to external forces. (The external forces being the search engines and traffic flow.)

Buy some out of the money calls for cheap, so if the stock doesn't go anywhere you don't lose much.

The trick with investments is not to lose much but to make a lot.

Regards...jmcc
(In a rather Gordon Gekko mood. )

 

[floatingworld]

(In a rather Gordon Gekko mood. )

Or as us LLLL domainers would say: 'Gree is good'

 

[Easydoms]

Always the same with investments!!!

How much risk you want to take, Stock and shares rise and fall, the same as everthing in life, always up and down!!!

 

[yandig]

I remembered this thread & thought I'd give an update on MCHX.
The stock ended trading today at $9.35, a big drop from its recent highs over $12. The COO just sold over $200,000 worth of his shares. It's a relatively small amount, but could signify that the Marchex brass thinks the stock price may be headed downward.
Coincidentally, today's closing price is only $.02 off from the valuation I gave in this thread.