Market Tests InfoSpace's Chin
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Last year the company's stock was among the top five best-performing Internet stocks, posting an astounding 1,023 percent gain. The momentum continued into the new century, as INSP shares closed as high as 261 1/16 on March 2, giving the stock a 144 percent gain in only two months of trading.
What makes this prolonged run-up all the more amazing is that, since going public in December 1998, INSP had never suffered the kind of stock price freefall that has beset nearly every other Internet company.
Until this month, when a straight right from a powerful market correction sent InfoSpace sprawling to the canvas. By March 21, INSP closed at 159 5/8, a drop of 39 percent in less than three weeks.
So should InfoSpace investors be worried? Sure, at least to the extent that, even at its current lower price, INSP remains overvalued relative to most other stocks. With a market cap of $16.5 billion, INSP is valued at 454 times last year's revenue of $36.36 million. At that same market cap, the company would need to more than quadruple sales just to get its revenue multiple down to double digits.
INSP believers are confident the company can easily grow into its valuation because it is aggressively trying to position itself as the premier content infrastructure provider for wireless Internet devices, a market expected by many to explode in the next two or three years.
CEO Naveen Jain estimates 40 percent of InfoSpace's revenue this year will come from wireless information services, and another 30 percent to 35 percent from wireless merchant services. In particular, Jain is targeting "offline" service merchants such as dry-cleaners that want to use the Internet to drive customers to their stores.
Long-term, it's a compelling business plan. In the short-term, InfoSpace needs to demonstrate strong revenue growth to regain momentum and erase investor doubts. Jain promised last week that INSP will meet or exceed analysts' earnings expectations when the company releases its Q1 report in late April.
That likely means little movement for INSP in either direction until the numbers come in.
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