A Trader's Guide to Ancestry.com (ACOM)

By Benzinga | June 07, 2012 AAA

Online family history and genealogy resource Ancestry.com (NASDAQ: ACOM) popped on Wednesday as news came through of the company's alignment with Qatalyst Partners LLC to shop for buyers, hitting a brief high of $26.16 in early market trading on heavy volume.

Whispers of Google (NASDAQ: GOOG), Facebook (NASDAQ: FB), and private equity firm interest in the genealogy company have appeared across media channels and message boards such as Yahoo! Finance over the past month, following the company's network television cancellation.

In order to frame an investment strategy, let's take a look at Ancestry.com's history, IPO, and recent trading levels.

Recent News and Updates

On May 13, Comcast-owned (NASDAQ: CMCSA) and minority owner GE (NYSE: GE)'s NBC Universal terminated Ancestry.com's show, "Who Do You Think You Are?" along with a succession of network cancellations.

The genealogy documentary series enjoyed three seasons, premiering on NBC March 5, 2010, and featuring celebrities in a journey through their family lineage. (Fun fact - Lisa Kudrow, best known as Phoebe on Friends, was an executive producer.)

Shares subsequently faced pressure the next day, losing over 13% on heavy volume at around four times the stock's three-month daily average trading hands. In recent trading sessions at the time, the stock had a very large short interest, with more than 20% of its float sold short.

Following the renewal decision, analysts covering the stock the following day seemed unanimous in positive sentiment. Piper Jaffray reiterated its company Overweight rating, Citi maintained its Buy rating, and Goldman Sachs put out a company update stating that significant growth drivers remain outside of near-term impact:

"While the stock is likely to react negatively to this news, we believe that allocating subscriber acquisition spending to other channels like social, search, and mobile may be of greater benefit to subscriber growth long-term. At 6X 2013E EV/EBITDA vs. 13X for the Internet average, we continue to believe the risk/reward in shares of ACOM remains favorable."

BofA Merrill Lynch also provided and CDC Software, which was suspended in December 2011 by Nasdaq and delisted from the exchange in 2012.

Ancestry.com debuted on the public markets on November 5, 2009, with 7.4 million shares priced at $13.50 per share - a perfect median for its $12.50 to $14.50 expectations. Shares had a 180-day lockup period and selling stockholders accounted for 44% of shares on the market.

Morgan Stanley (NYSE: MS) and BofA Merrill Lynch (NYSE: BAC) headed up the offering, with BMO Capital Markets, Piper Jaffray (NYSE: PJC), and Jefferies (NYSE: JEF) serving as co-managers.

Notably, OpenTable (NASDAQ: OPEN) opened May 21, 2009, with a boom; or as TechCrunch astutely put it , "On a day when the Nasdaq is down 2 percent, OpenTable is up 40 45 percent from its offering price of $20 (which itself kept moving up from $12 to $14 initially)."

At the end of the day, OpenTable closed at $31.89, up 59%, with a market cap of $689 million. The company today has a market cap of around $906 million.

Tech IPO chatter had investor, self-proclaimed "media guy" and Bloomberg Contributing Editor Paul Kedrosky nervous at the end of the year - citing Netscape's flop, Yelp's (NASDAQ: YELP) pre-IPO Google (NASDAQ: GOOG) rebuff, and Zynga's (NASDAQ: ZNGA) pre-IPO funding round as the dangers awaiting us in 2010.

Ancestry.com enjoyed nice growth in 2010's market. Shares appreciated over $14 by the end of the year, and November brought a secondary offering to the market priced at $26 per share.

Analyst ratings firms Dougherty, BMO Capital Markets, and Jefferies initiated coverage on the company from December 2009 to March 2012, with Canaccord Genuity initiating in January 2011. The company announced revenues of just under $400 million in 2011.

Shares closed Wednesday at $25.06 at a trading volume of three million, up 10.74% from Tuesday's market close, and with a 200 day moving average (DMA) of $25.18.

Year to date, shares of Ancestry.com closed Wednesday over 9%, and sat relatively flat (down around .5%) over the past month.

At current levels, Ancestry.com is down over 3%, with a market cap of around $1.03 billion.

Actionable Trading Ideas:

Bullish:

  • If you believe Ancestry.com shares are undervalued at current levels, today's selloff may present a long-term opportunity.
  • Social media networks and Internet giants Facebook (NASDAQ: FB), LinkedIn (NASDAQ: LNKD), and Google (NASDAQ: GOOG) may enjoy some play as rumors continue to circulate and the company moves forward in its search for a buyer.

Bearish:

  • If you do not see Ancestry.com's acquisition strategy as profitable, you might look for other opportunities in the Web and Tech space such as Web.com (NASDAQ: WWWW), XO Group (NYSE: XOXO), InterActiveCorp (NASDAQ: IACI), and FriendFinder Networks (NASDAQ: FFN).
  • Not feeling the Tech market? Take a page out of Warren Buffett's book and look to blue chips such as Coca-Cola (NYSE: KO), McDonald's (NYSE: MCD), or Pepsi (NYSE: PEP).

Follow me on Twitter: @Hilary_Louise

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