There’s an interesting BreakingViews article in the October 26, 2009 edition of the New York Times. In a nutshell, the authors of the article are questioning the value of the shares at the middle of the Ancestry.com I.P.O. range. Just looking at the numbers, they seem to have a point. However, Ancestry.com is riding high at the moment, being one of the few companies to be highly profitable during a period of recession. Investment is always a gamble. Granted, the gamble is sometimes less risky than it could be at other times. I may be wrong, but if Ancestry.com can do well now, what might it be able to do AFTER the recession? AFTER the baby-boomers have retired with disposable income and the time to spend it? After all, the average Ancestry.com outlay of $16.50 per subscriber is pretty cheap for a hobby as satisfying as genealogy. Is the stock overpriced? Maybe… But then again, time will tell… Following is a teaser from the article.
Ancestry.com wants to put down some roots. The genealogy Web site hopes investors will provide $100 million in an initial public offering, valuing the whole thing at $572 million. That seems too high for Ancestry to cement a happy legacy with investors.
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The site had 1.03 million paying customers at the end of September. Each, on average, produced $16.50 a month in revenue in the first nine months of this year. So far so good. But about 4 percent of subscribers cancel every month, meaning roughly half the customer base turns over every year.
That is not the only alarm bell. As recently as June, the company, for option grant purposes, valued its own shares at $8.54 apiece, against $13.50 at the middle of the indicated I.P.O. range. The Nasdaq stock index is up more than 15 percent since then. But that would account for only a fraction of the difference, and I.P.O.’s are usually priced at a discount.
Read the full article by Aliza Rosenbaum and Martin Hutchinson in the October 26, 2009 edition of the New York Times.
