Is The Market Pricing Web.com Fairly?
Web.com’s (NASDAQ:WEB) revenue grew by 6% in 2017. The company has a strong position in the domain registration business. The company acquired multiple companies in the past two years to strengthen its product offerings. The acquisitions include Acquisio, a business software provider of online advertisement; Yodle, a cloud-based online marketing company; and DonWeb, a web hosting and domain registration company which caters to the Latin American market. As more and more companies rely on digitally growing their business, Web.com’s strong position in the domain registration market and web-based solutions will help it grow in the near term. Additionally, the company’s focus on small businesses, providing them with affordable products and services to maintain an online presence and conduct business smoothly, bodes well for the company’s growth outlook.
We have also created an interactive dashboard which shows our forecasts and estimates for the company; you can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.
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We have arrived at our price estimate for Web.com based on EPS projections of $1.05 for 2018, and a P/E multiple of 21. The market price stood at $19.85 as of March 19, which is about 10% below our price estimate.
Web.com generates revenue from two primary sources: Subscription revenue and Professional services revenue.
Subscription revenues are likely to grow with recent acquisitions driving customer growth.
Professional services revenue is likely to grow with more businesses going online and companies opting for custom web designs and support services.
We expect the margin to remain under pressure as the company realizes the costs related to recent acquisitions.
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