Weekly Internet Notes: CTCT, CTRP, SFLY, VRSN

CTRP: Ctrip logo
CTRP
Ctrip

Key Takeaway: Internet stocks started the week on a strong note but declined faster than broader indices on Tuesday and remained depressed throughout the remainder of the week. Macroeconomic factors such as the Iraq crisis, along with unimpressive news from McDonalds and Home Depot weighed on U.S. market indices. The technology sector was primarily dragged down by Apple, whose latest product launches did not resonate with investors. High beta Internet stocks felt a larger downward pull during the week.

In this report, we present some of the key events from the past week for four Internet companies, Constant Contact (NASDAQ:CTCT), Ctrip International (NASDAQ:CTRP), Shutterfly Inc. (NASDAQ:SFLY) and VeriSign Inc. (NASDAQ:VRSN).

Constant Contact

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Shares of Constant Contact edged down a bit through the week and are off 10% from their recent high. Still, the stock is nearly 40% over its prior year level. Given its strong earnings growth, its forward P/E is a bit above market at 22x, with a PEG (i.e., P/E to Growth Rate ratio) of 1.25x.  In short, the company’s strong fundamentals support its growth valuation.

We have a price estimate of $30 for Constant Contact, marginally ahead of its current market price of $29. Our full FY14 revenue estimate stands at approximately $333 million, compared to a consensus estimate of $331 million. We expect non-GAAP earnings per share of $1.08 this fiscal year, compared to consensus estimates of $1.03.

Ctrip International

Shares of the Chinese Online Travel Agency contracted this week, shedding more than 5% of their value. Most of these losses through the week were in response to broader indices. On a company-specific level, Ctrip is rumored to have parted ways with the second biggest OTA in the Chinese market, Qunar, and removed its hotel listings on the platform. Both Ctrip and Qunar, a subsidiary of Chinese tech giant Baidu, have been reported to be in talks for a potential merger earlier this year. [1]

Although this new development between Ctrip and Qunar has not been officially confirmed, this seems to have transpired from some friction between the two management teams. “As described by Ctrip, Qunar is now giving priority placement to its own listings and is no longer acting as a neutral listings platform.” ((Ctrip Removes Hotel Products from Qunar, Marbridge Daily, September 2014)) We believe the revenue hit from removing listings on the Qunar platform to be marginal and do not expect a significant impact on Ctrip’s stock.

We have a price estimate of $55 for Ctrip International, about 16% lower than its current market price of $65. Our full FY14 revenue estimate stands at approximately $1,269 million, compared to a consensus estimate of $1,184 million. We expect GAAP earnings per share of $1.29 this fiscal year, compared to consensus estimates of $0.67.

Shutterfly Inc.

Similar to the NASDAQ Internet Index (INDEXNASDAQ:QNET), shares of Shutterfly started the week on a strong note but have seen an erosion in value. Shares for the online photo-retailer are down 2.6% this week. The company launched a new iPad application for its tinyprints brand. Additionally, Reuters reported that Bain Capital and Silver Lake Partners are among the buyout firms looking to acquire the online photoretailer. An update on Shutterfly’s buyout talks is expected by September end. (Read more on these developments here)

We have a price estimate of $49 for Shutterfly, in-line with its current market price. We have a full FY14 revenue estimate of approximately $909 million compared to a consensus estimate of $918 million. Our GAAP earnings per share forecast for FY14 stands at -$0.01, in-line with consensus estimates.

VeriSign Inc.

VeriSign shares showed a similar trend, slipping on Tuesday and staying subdued, although no material event has impacted the company’s fundamentals. VeriSign’s shares have declined 1.2% this week, comparatively lower than the other Internet stocks listed above. Year-to-date, VeriSign’s shares are down nearly 4.5% compared to a 10.5% gain on the NASDAQ Composite. Investor concerns over growth remain an issue for the stock.

We have a price estimate of $55 for VeriSign, marginally lower than its current market price of $57. We have a full FY14 revenue estimate of approximately $1.01 billion, matching consensus estimates. Our GAAP earnings per share forecast for FY14 stands at $2.46, lower than the consensus estimate of approximately $2.72.

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Notes:
  1. Baidu’s Qunar Said to Be in Merger Talks With Ctrip, Bloomberg, April 2014 []