Marchex, Inc. (NASDAQ:MCHX) reported its results for the quarter ended December 31, 2011, on Thursday after the market closed.
Shares of March fell over 5% on Friday following the earnings report to close at $4.80 a share, giving the company a lower market cap, once again, than the $165 million dollar purchase of the domain name portfolio of Yung Yee.
According to the earnings report Marchex sold during the fourth quarter, $2.3 million in domain names and sold $9.4 million for 2011
Here are the results:
Fourth Quarter 2011 Consolidated Financial Results:
- Revenue was $39.0 million for the fourth quarter of 2011, compared to $28.0 million for the same period of 2010.
- GAAP net income applicable to common stockholders was $920,000 for the fourth quarter of 2011 or $0.03 per diluted share. This compares to GAAP net income applicable to common stockholders of $593,000 or $0.02 per diluted share for the same period of 2010. The fourth quarter 2011 results included non-cash stock-based compensation expense of $3.7 million, compared to non-cash stock-based compensation expense of $2.9 million for the same period in 2010.
- We provide a reconciliation of GAAP diluted EPS to Adjusted Non-GAAP EPS in the financial tables attached to this press release and we encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for fourth quarter 2011 was $0.08, compared to $0.04 for the same period in 2010.
- Adjusted operating income before amortization was $5.5 million for the fourth quarter of 2011, compared to $2.3 million for the same period of 2010. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income is included in the financial tables attached to this release.
- Adjusted EBITDA was $6.5 million in the fourth quarter of 2011, compared to $3.4 million for the same period of 2010. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.
Full Year 2011 Consolidated Financial Results
- Revenue for the year ended December 31, 2011 was $146.7 million, compared to $97.6 million in 2010.
- GAAP net income applicable to common stockholders was $2.7 million or $0.08 per diluted share for 2011. This compares to GAAP net loss applicable to common stockholders of $3.2 million or $0.10 per diluted share in 2010.
- As discussed in the summary of the fourth quarter 2011 consolidated financial results, a reconciliation is provided of GAAP diluted EPS to Adjusted Non-GAAP EPS in the financial tables attached to this press release and we encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for 2011 was $0.30, compared to $0.06 in 2010.
- Adjusted operating income before amortization was $19.1 million for 2011, compared to $3.0 million in 2010. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income (loss) is included in the financial tables attached to this release.
- Adjusted EBITDA was $23.1 million for 2011, compared to $7.9 million in 2010. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.
“We believe the rapid growth of the mobile marketplace will transform how advertisers buy and measure new customer phone calls as a lead source,” said Russell C. Horowitz, Marchex Chairman and CEO. “We have now grown our digital call advertising business to more than $100 million in annualized revenue in a short period of time, and we believe that Marchex is very well positioned to be a leader over the long term in this emerging and transformative market.”
2011 Selected Highlights:
1. Increased Mobile Distribution.
a. Marchex has built one of the industry’s leading mobile voice search platforms, which is now integrated with most of the major mobile carriers in North America, including Sprint and Verizon.
b. A Marchex Institute study revealed that during a two month period in 2011 more than 15 million mobile phones1, or five percent of the approximately 300 million in use in North America, made a phone call to a business advertiser utilizing Marchex’s Digital Call Advertising platform.
c. In November, Marchex announced the availability of a unique mobile application that integrates multiple local search capabilities into a single application, including voice search. Marchex is providing mobile carriers with the ability to take this application under their own brand and customize it for their unique customer base. Using the Free411 mobile application from Marchex not only gives mobile carriers an important touch point with their customers, but also offers an additional revenue opportunity since the application is ad-supported through Pay-For-Call advertisements.
2. Call-Driven Revenues: For the fourth quarter of 2011, revenue from call advertising products was $28.2 million.
3. During the fourth quarter, Marchex sold a small number of domains that yielded $2.3 million, bringing the total for the full year 2011 to $9.4 million.
4. Marchex also purchased 460,000 shares of its outstanding Class B common stock for a total price of $2.9 million, bringing its purchases for the full year 2011 to 883,000 shares for a total price of $6.2 million. This brings Marchex’s total shares repurchased under its stock repurchase program to 10.9 million shares, or 29% of its outstanding common stock.
Marchex Guidance:
The following forward-looking statements reflect Marchex’s expectations as of February 16, 2012.
| Financial guidance for the fiscal year ending December 31, 2012: | ||
| � | ||
| Revenue: | � | $150 million to $160 million |
| Adjusted Operating Income Before Amortization: | More than $15 million | |
| Adjusted EBITDA: | Estimated add-backs of approximately $4.5 million in additional depreciation and amortization to adjusted operating income before amortization, implying an adjusted EBITDA of more than $19.5 million | |
| Long Term Adjusted EBITDA Margin Target: | 20% or more | |
2012 GAAP income (loss) from operations is expected to be ($6.5) million or better, assuming stock-based compensation between $15 million and $16 million and amortization of intangible assets from acquisitions between $4.7 million and $5.5 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets.
“We expect more than 20% growth from call-driven revenue sources in 2012. In addition, for the first quarter of 2012, Marchex anticipates lower revenue than in the fourth quarter of 2011, largely due to weakness in non-call-driven sources. Although our customers’ advertising budgets may fluctuate from quarter to quarter, we expect continued progress with our call advertising products will lead to sequential increases in revenue from the first quarter forward. As we move forward, we are carefully managing our investment in the Digital Call Advertising opportunity such that as we grow, a portion of the incremental contribution will be allocated to support our growth initiatives, including investments in our products, our people and our customers. The rest will flow through to contribute to expanding contribution margins over the course of the year,” said Michael Arends, Marchex Chief Financial Officer.
If they keep selling Yung Yee’s domains, why wouldn’t their market cap stay at the level of purchase or below? On the other hand, if they acquired those domains they sold after the purchase of Yung Yee, then that would be very strong.
So I would eliminate the sale of all domains (assets) and re-examine the numbers without the sales but deduct for loss of domain names.
I thought it’s Yun Ye, not Yung Yee.
Rick
Well Marchex bought this domain portfolio many years ago so we would assume the total value of the domains have risen of offset sales.
Also the domains they bought were basically all parked, you would hope they could have increased the value of the domains but usage and development.
From the report:
“3. During the fourth quarter, Marchex sold a small number of domains that yielded $2.3 million, bringing the total for the full year 2011 to $9.4 million.”
I would think a publicly traded corporation would have to list the assets it sold.
The quality and quantity of it’s assets are DIRECTLY relevant to the valuation of the company.
Say they sold 90% of all their domains and simply called it a “large number” of domain names for X price. I think stockholders would be outraged NOT to know the quantity of domains AND the domain names that sold.
A “small number” is certainly not an accounting term and would be unacceptable to me if I was a stockholder.
Don’t you think they should have to itemize the sale of their assets?
What if they owned real estate and sold several properties? Would a company be able to state that they sold a “small number” of real estate assets?
This is the only part that interests me
“digital call advertising business to more than $100 million in annualized revenue”
Thats GREAT, but it also means the rest of their biz went to shit ?
The rest of their biz now accounts for only $50m a year ?
What happened to industrybrains, their local products and of course domain revenues ?
interesting commets…..acquisition costs do not necessary reflect current market value.
example charlie ergens purchase of the wireless spectrum charlie paid 100 cents on the dollar and bought the spectrum out of bankrupty now then specturm is priceless to att who lost their bid of t mobile and paid 3 billion break up fee.charlie holds all the cards.
another problem as the underlying asstes are sold off the capitolization of the company falls in value….less assets to monetize
but the biggest problem is marchex management they have failed to extract the maximum amount of value from the yung ye portfolio…which moved from ppc to content.so the problem is with marchexs management..
now if some sharp domainer operator… had a working model that has a seasoned record of generating capitol off of domains had a good base they could buy the entire marchexs company and apply their biz model..its called an lbo…kkk comes to mind…
“”So I would eliminate the sale of all domains (assets) and re-examine the numbers without the sales but deduct for loss of domain names.””
Why would you do that Rick ?
FX,
I think Robs comments explain it perfectly. What if they sold off their best domains? Or just very important ones? Or they sold cheap? Or they have no plan to acquire more domains. There is extremely important data missing from this equation. So it is impossible to fully and clearly see where they are. imo
Is this a growth company or one that is aimlessly wandering along? I don’t know the answer because there is not enough info for me personally to make a determination.
I agree with Michael, in that what really matters is the value of the domains/sites they currently have. I would assume the value of those domains has gone down since they bought them, especially because the parking income probably went way down since that time. And, every year they keep selling some, so that brings the value down even more.
On the other hand, because they bought the domains in bulk at a discount and are probably selling them one by one at retail prices, they are probably making good money from these sales. Also, if they improved these domains from being parked to having real content, then that could add a huge amount of value, similar to Demand Media.
They also may have had some domains before the $165 million purchase in 2005, and maybe bought more domains since then, so it is very hard to estimate anything about the value of the company without a list of their domains/sites and how much they are earning from them.
It is possible the value of these domains is much greater than all of their entire other businesses, even though it accounts for only a small portion of their revenue. It is also possible the value of the domains has crashed since that time.
It seems like Marchex is now focusing on call advertising and not domains, so their stock price is probably based more on that business.
What I can say from my personal experience is that since 2008, it is much harder to find buyers for large domain portfolios unless you are selling at fire sale prices, so although on paper the Marchex domains might be worth $165 million if you appraise them individually, if they try to sell them in bulk they may only get 25-50% of whatever they are “worth”.
First, let me point out that I do not have the domain experience of others here such as Rick Schwartz. (How many people do???!!!) Therefore, I would appreciate some insight from the domain community.
I have done some research on this Marchex situation that leads to several points. In this post, I will cover the first point of my research.
POINT ONE
Looking back through all of the Marchex Quarterly reports, I have found a total of $21 million in domain sales at Marchex. From my research, it shows the first REPORTED domain sales at Marchex to be the first quarter of 2009. That report reads:
“In addition, during the quarter, Marchex sold a small number of non-strategic domains that yielded nearly $1 million. There is still significant demand for high quality domains and Marchex believes that will remain the case in 2009 and beyond.”
Does anyone have any indication that Marchex was selling off domains prior to the reported sales in first quarter of 2009?
My research shows the total REPORTED domain sales being $21 million. Does anyone have any information different than that?
Thanks!!
Doe Main
Doe Main, thats some good research. Thanks
MCHX has been selling domains every Quarter for the last 5+ years.
The value of domains they’ve held has gone up since 2004-5, when they spent over $200m buying up portfolios. Why jump on them now for not disclosing individual domain sales, when they’ve never done it. Just as an example, Yahoo, IBM, Computer Associates have all sold high value domains without disclosing it in their S1.
All they’ve done here is used high margin revenue from their domain holdings to pivot their business onto solid products and new industries. I’d say that’s pretty cool.
POINT TWO
From my research, for the fourth quarter of 2011, Marchex reported:
“During the fourth quarter, Marchex sold a small number of domains that yielded $2.3 million, bringing the total for the full year 2011 to $9.4 million.”
For the first quarter of 2009, Marchex had reported:
“In addition, during the quarter, Marchex sold a small number of non-strategic domains that yielded nearly $1 million. There is still significant demand for high quality domains and Marchex believes that will remain the case in 2009 and beyond.”
Looking back over the quarterly reports, Marchex has dropped the “non- strategic domains” wording. Also, the second sentence about “significant demand” is also no longer used. There could be different points of views of this:
POV One: The change of wording means nothing. Someone in PR in writing the quarterly reports just dropped that wording without any further meaning.
POV Two: The change of wording is well thought out and deliberate. In using the “non-strategic domains” term in the past, that could open Marchex up to being questioned about the difference between their non-strategic domains and their strategic domains.
What are the thoughts on this?
Is the wording change deliberate?
On the “non-strategic domains” term, does anyone know if Marchex has ever defined what this means?
My guess would be that “non-strategic domains” are those where the monetization efforts by Marchex are not paying off. Any other thoughts?
Any input or views on this is appreciated!!!
Doe Main
I have inquired about buying several domain names from Marchex and Frank Schilling’s portfolios.
If you’re a domainer, you know that Frank Schilling has high prices for domain names and will NOT sell cheap.
Let me just conclude with this…Frank Schilling’s domain prices are very very cheap compared to Marchex’s domain prices…Marchex will never ever sell cheap!
Now for the stock price of MCHX which is trading at around $4.80 after hours price…i think it’s worth about $7 per share in the long term…but will only recommend to BUY if it drops below $4. If it drops below $4.
FX,
Thanks for your post. Your follow up is part of the reason I have broken up these points. I wanted to be able to get feedback on those individual items. In fact, your reply leads to Point Three. But first, I am not out to “beat up” Marchex on any of these factors. I have done a fair amount of research on this and welcome the opportunity for some insight.
POINT THREE
About reporting their domain sales, Marchex did respond to a direct question on the fourth quarter of 2010 Earnings Conference Call on February 15, 2011. The stock analyst asked Marchex to provide the number of domains sold in the fourth quarter. Marchex reported that they had one bulk transaction of 900 domains and about 40 other domains which were sold, for a total of 940 domains.
Now, my questions on this:
Does anyone have any input on the 900 domains that were sold? Were they bought by someone who then put some or all of them back on the market?
Are there any ideas as to who purchased these domains?
I ask this because I know of some working in the domain industry who have attempted to purchase domains from Marchex and have had little success in that regard.
Also, for the sake of conversation, we might venture that someone had purchased some of these domains in order to monetize them. What might someone else know about how to monetize a domain that would have been more successful than how Marchex might monetize the same domain?
Again, any help or views are appreciated!!!!
Doe Main
Anunt,
Thanks for the insight. I am not making this up; your reply leads to my point four!!!
POINT FOUR
As mentioned, for the fourth quarter of 2010, Marchex reported selling 940 domains.
As an aside, the last I checked, the fourth quarter of 2010 Earnings Conference Call info is no longer available on the Marchex site. In case it is needed, does anyone know where to get the transcribed copies of the calls?
Also Marchex reported:
“During the fourth quarter of 2010, Marchex sold a small number of non- strategic domains that yielded $2.1 million.”
Now, I know this is an apples to oranges comparison, but selling 940 domains for $2.1 million works out to $2,234.04 per domain. Again, there are all sorts of factors that make that calculation not very valid. Some of the domains could have sold for a lot of money, while other domains contained hyphens, had questionable TLDs, no key word value, etc.
That being the case, an average of $2,234.04 per domain is a LONG WAY from the 25K people have reported as the minimum that Marchex would accept for a domain.
Does this indicate the Marchex has domains worth a LOT less than the 25k minimum that is reported that they will accept? If so, how does one go about buying their domains that are worth less then $3,000.00? Buy them 900 at a time?
Once again, I value the feedback here!!!!
Doe Main
doe main you sound like someone who is looking to understand domaining without understanding how the system works.
one cannot learn how the system works, including tracking ownership of domains, by reading documents filed with the sec. or comments on a blog. the docs one needs to read are found elsewhere.
on the one hand you have yun ye, a computer science grad, who built and maintained the portfolio marchex now has, then sold it for over 100 million.
and on the other hand you have russell horowitz, a serial internet entrepreneur with a liberal arts degree, who became involved with infospace, a company that engaged in securities fraud. intelius, the infospace founder’s follow up company has also come under fire for fraud. horowitz follow up to go2net was marchex.
knowing about what go2net did and the objectives of infospace, it seems clear what marchex’s overall strategy is in terms of how they want to make money.
and if you look at yun’s portfolio, you can see how the domain names he registered fit with the strategy. you might also see why it’s preferrable not to break up that portfolio, at least in terms of the “strategic” names, i.e. those that fit with marchex’s strategy.
personally, when it comes to this area of technology, i have found the type of knowledge someone like yun ye possesses to be far more valuable than the type of knowledge employed by the likes of someone like russell horowitz.
and in retropect, as this blog entry seems to suggest, it looks like 20-something ye has made more profit in his lifetime than 40-something horowitz. is that true?
one appears to have been very wise in how he spent his own money, able to retire at a young age, while the other appears to be adept at spending other people’s money, and losing it, repeatedly.
I say that will not even cover their payroll and not to mention the Fat Cat ‘ bonuses (last I read therr was 500 heads)…
Terrible results for a company that refuses to adjust to current economic conditions and gives irrational pricing .
I venture to say FS. has much better results/profits with a skeleton crew …
P/E ratio nearly 100 , calling for a 1 USD stock.
The whole point is that without knowing a complete inventory of their names and without knowing exactly what names they’re selling off, it’s impossible to make an accurate appraisal of what their assets really are.
Since they are an asset based business, any knowledge of the company- absent this information- is fatally incomplete.
It would be like if I were an art investor and owned 1,000 paintings.
Perhaps I owned a Van Gough and a Rembrandt.
Next level down, I owned a few production grade Piccassos and Warhols.
Next level down, some less important works from less important artists… until you got to the bottom of my holdings, represented by speculative works from artists with very little present value.
If I said “I have sold off 11 paintings for a total of 4,000,000 dollars…”, the obvious question is “What paintings have you sold?”
If they were the speculative paintings, then that is a hugely positive signal for the company. If one of them was my lone Rembrandt, that’s the corporate equivalent of burning the furniture.
Without knowing what they have and what they’re selling on an itemized basis, it’s impossible to appraise anything about this company.
and yet people will still invest money with companies like these without this basic knowledge.
and analysts will attempt to report on these companies without even knowing how to get a list of their “inventory”.
it is amusing, indeed. one can hype their way to a small fortune.
this, imo, is why fs is correct when he says there is still opportunuity like in no other business. because in almost every other business, investors and analysts are better informed. there’s higher scrutiny and more competition.
not to say those following other industries understand all the information they receive. but they at least have the basic information.
with domaining, most onlookers do not even have the basic information, despite the fact it is publicly available. they don’t understand the system and won’t make the effort to figure it out. domainers like ye or fs have invested that time. and then some.
and they reaped the opportunity from making that investment in time and effort.