Bankrate: Raising Interest
A Web site that specializes in interest rates and other consumer-finance information could capitalize on growth in Internet advertising.
Bankrate.com survived the bursting of the dot-com bubble at the start of the decade. A few years later, the popular repository of interest-rate information was struggling again as the mortgage-refinancing boom started to bust. Now, nearly two years into a business-model makeover led by new management, Bankrate (symbol RATE; recent price $37) is poised for major growth as Internet advertising comes of age.
SunTrust Robinson Humphrey is one of the stock's major boosters. Analyst Andrew Jeffrey began covering the stock this week and outlines a bullish case for Bankrate, starting with his rosy outlook for Internet ad revenue.
Ad spending on the Internet reached a $15.5 billion annual rate in early 2006 and grows by the day. Yet Web ads account for only 5% of the total annual ad market. As companies continue to court online consumers, Internet advertising will expand rapidly, becoming a $20 billion market by 2010, according to Jupiter Research.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Bankrate is in a great position to capitalize on the trend, according to Jeffrey. Its brand is well recognized, with unparalleled interest rate and other consumer-finance information distributed to hundreds of newspapers and other publications (including Kiplinger's). The Web site attracts some five million visits a month. And most of those visitors cost the company virtually nothing to attract. About 81% of the site's traffic is from users typing the site's URL into their browsers' address bars, or from Internet searches. Another 14% comes from people linking to Bankrate from sites Bankrate is in partnership with. Only 5% of traffic is generated by searches that Bankrate pays to be included in.
Advertisers pay generously to reach Bankrate's visitors, many of whom are prepared to initiate financial transactions, ranging from buying a house to choosing a credit card. Chief executive Tom Evans, a media veteran, has overseen a pricing overhaul in the past two years. Instead of charging advertisers a flat rate based on how often an ad appears, Bankrate now uses a performance-based rate that measures how often users click on, or interact with ads.
SunTrust's buy recommendation comes with some very aggressive assumptions. Jeffrey thinks the stock could reach $55 a share within the next 12 months, nearly a 50% gain from the current price. The stock trades at 31 times Jeffrey's 2007 earnings estimate of $1.19 a share. The average estimate for analysts covering the stock is $1.16, and the average price-earnings multiple for similar stocks is about 20 times 2007 earnings. Jeffrey thinks Bankrate will sustain 20% to 25% annual revenue growth and 30%-plus annual earnings growth for the foreseeable future, as the company continues raising advertising rates and expands its financial repertoire, potentially offering information about stocks, mutual funds, bonds, health care and real estate.
Despite everything going for it, Bankrate, with a market value of about $600 million, is not a stock for conservative investors. SunTrust ranks the stock as high-risk. Bankrate is a dot-com stock after all, and we won't blame the gun-shy for going elsewhere.
--Anne Kates Smith
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
How To Use Beta in Investing
Beta is one way to measure a stock's historical volatility. Here's how it works.
By Coryanne Hicks Published
-
Key Tax Provisions That Are Expiring After 2025
The Tax Letter Unless Congress decides to act, lots of tax changes will take effect in 2026, including higher tax rates and lower standard deductions.
By Joy Taylor Published
-
Stock Market Today: Stocks Soar on Apple Buyback News, Jobs Data
The main indexes rallied hard to end the week thanks to Apple's $110 billion stock repurchase plan and a big April payrolls miss.
By Karee Venema Published
-
Stock Market Today: Stocks Sizzle Ahead of Apple Earnings, Jobs Report
The Nasdaq outperformed in a strong day for stocks thanks to Qualcomm's post-earnings pop.
By Karee Venema Published
-
Stock Market Today: Stocks Pop Then Drop After Fed Meeting
Stocks went on a roller-coaster ride after Fed Chair Powell said interest rates were likely at a sufficiently restrictive level.
By Karee Venema Published
-
Fed Holds Rates Steady at 23-Year High: What the Experts Are Saying
Federal Reserve The Federal Reserve struck a dovish pose even as it kept interest rates unchanged for a sixth straight meeting.
By Dan Burrows Published
-
Stock Market Today: Stocks Sell Off Ahead of Fed Decision
Stocks sold off sharply Tuesday as anxiety set in ahead of Wednesday's policy statement from the Federal Reserve.
By Karee Venema Published
-
Stock Market Today: Markets Post Broad-Based Gains Thanks to Mega-Cap Tech
Stocks get help from a couple of laggard Magnificent 7 stocks.
By Dan Burrows Published
-
Stock Market Today: Markets Soar Amid Strong Earnings for Big Tech
Equities ended the week on an up note thanks to some of the market's biggest names.
By Dan Burrows Published
-
Stock Market Today: Markets Tumble Amid Slower Economic Growth and Rising Prices
Disappointing readings on GDP and inflation helped tank equities.
By Dan Burrows Published