Search engine powerhouses Google (Nasdaq:GOOG) and (Nasdaq:BIDU) simplify the way we find answers. What is supposed to be a time saver has most likely become a time waster. Along the way, advertisers learned that the internet is an excellent venue for reaching potential customers. In 2007, internet advertising totaled $45 billion worldwide. By 2012, that number should grow to $147 billion, 20% of all advertising dollars, according to researchers at The Kelsey Group.

Most investors know the Google story and its $600 stock, but how many know the story of Internet Brands (Nasdaq:INET)? The company is a creation of Idea Labs' Bill Gross. Originally called back in 1998, it adopted the Internet Brands moniker in 2005 to reflect a rapidly diversifying internet media company that today has over 55 vertical web sites providing targeted content in three specific consumer interests: automotive, home-related, and travel and leisure. In March of 2008, the company's websites had 34 million unique monthly visitors and 458 million monthly page views. That's a lot of attention.

What Makes It Tick
The company makes money two ways; first, it monetizes its consumer sites through targeted advertising, and second, it licenses its proprietary content and technology for use by others. In 2007, total revenue was $89.9 million with the consumer sites accounting for 70.9% of the business and its licensing division the remaining 29.1%.

Last year was also a transition year. It bought 45 websites for its consumer internet division and purchased Jelsoft Enterprises for its licensing division. Jelsoft is a developer of proprietary community bulletin board software. Internet Brands biggest advantage is its ability to drive organic traffic to its web sites, raising its profit margins moving forward. Organic traffic is web traffic that comes from unpaid listings at search engines. Pacific Growth Equities feels investors aren't factoring organic traffic into the current price of the stock, which is trading below $7, and presents a good opportunity, attaching a fair value of $12 to its 'buy' recommendation.

2008 Guidance
Internet Brands began with an inauspicious start. It went public November 16, 2007 at a price of $8, well below the $10-12 management hoped for at the time. Since then, the stock has been above and below the IPO price several times, down almost double the Nasdaq. As suggested above, this treatment may not be justified.

When it announced fourth-quarter and year-end earnings at the end of February, Internet Brands also gave guidance for 2008. Company estimates included $100-110 million in revenue, $32-36 million in EBITDA earnings, and EBITDA margins between 32-34%. These would all be healthy increases from 2007. If the company hits these numbers, the price-to-sales ratio would be 2.92, about four times less than Google's and half of Yahoo (Nasdaq:YHOO). It's not an apples-to-apples comparison, but it's still a good barometer for determining if the stock is undervalued relative to the market.

Can Bill Gross Deliver?
As far back as 2000, was considering an IPO. It never happened as the internet bubble burst. Bill Gross, CEO of Idealab, the Pasadena-based technology incubator and owner of 28.6% of Internet Brands stock, definitely has a checkered past. Winning and losing with businesses like Citysearch and eToys, Gross spent $800 million in just eight months during the dotcom bubble. However, he is clearly one of the brightest and most entrepreneurial people in the tech business.

Can Gross run a public company? Fortunately, he won't have to.

Robert Brisco is the man in charge now. He has been CEO of Internet Brands since 1999 and owns of 9% of its stock. Brisco's past includes launching the Los Angeles Times website and new media endeavors. When he first joined the company, it was losing hundreds of millions of dollars. Now profitable, they've come a long way together. (To learn more, read Evaluating A Company's Management.)

Bottom Line
As someone who worked for an online media company, I can relate to what Internet Brands is trying to do. By focusing on a few consumer interests and providing lots of community interaction as well as useful content, it provides advertisers the perfect vehicle to attract the right customers. It expects to make a little from a lot of sites. It won't be easy given the current weakness in both automotive and home-related businesses, but in the long-term this should work

Related Articles
  1. Investing

    How Aliko Dangote Became the Richest African

    An overview of how Aliko Dangote turned a local commodities trading business into a billion-dollar conglomerate.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  4. Investing News

    Austin Set to Rival Silicon Valley

    Over the years, Austin, Texas has lovingly embraced its quirky reputation with the slogan “Keep Austin Weird.” Today, the capital city is attracting several tech startups and investors, making ...
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Entrepreneurship

    Top 3 Most Successful Korean Entrepreneurs

    Discover the backgrounds of some of the most successful Korean entrepreneurs and information about the companies and projects leading to their success.
  7. Entrepreneurship

    Top 5 Most Successful Swedish Entrepreneurs

    Understand what makes Sweden a great place for entrepreneurship. Learn about five successful Swedish entrepreneurs who are making big impacts.
  8. Entrepreneurship

    Top 3 Most Successful African Entrepreneurs

    Discover the educational backgrounds and entrepreneurial ventures of some of the most successful and well-known African entrepreneurs.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!