Sadly, the company is trading at very rich valuations. 2013 EPS are expected to come in around $.29 and the current share price around $36 gives the firm a forward P/E ratio of 124. Zillow is a good company to watch, but currently valuations are too high for comfort.
Linkedin Corporation (NYSE:LNKD) is the well-known social network for professionals. Google’s struggles with Google+ show that developing a social network is not an easy feat. LinkedIn has managed to grow their user base to 200 million users. This user base gives LinkedIn that all important moat. Even though Facebook has a larger user base, LinkedIn’s professional audience is inherently smaller.
Still, valuations have gotten out of hand. 2014 EPS estimates come in at $1.11. Currently shares trade around $150, which gives the company a forward P/E ratio of 135. Year-over-year revenue growth has already started to slow down. Even with a gross margin of 86.4% LinkedIn’s ROI 2.1% shows that some degree of caution is necessary. Bulls cite the need to invest for future growth as justification for low ROI, but the amount of future growth is certain. Until LinkedIn trades at lower valuations it is best left for another day.
A Company with a Very Small Moat and Rather Unclear Strategy
Groupon Inc (NASDAQ:GRPN) is an interesting firm that has had a quite visible life lately. Accusations of ripping off merchants and their very creative accounting measures make for good news stories. Their model of selling deals to consumers through an email list is not very difficult to replicate. The entry of well-funded competitors like Living Social shows the danger of operating without a strong moat.
The company’s strategy is rather unclear and they recently entered the payment space in addition to their journey into ecommerce. Diversifying out of a daily deals business model is encouraging, but it is still unclear if Groupon will be able to compete successfully.
Over the past year the growth in number of active customers has decreased. They have no debt and an EBIT margin of 6.2%. Even with a gross margin of 77.9%, Groupon faces massive costs and a headcount above 10,000 that drag down earnings. Paying an army of salesmen and saleswomen is not cheap. In addition to these issues, the company is not cheap and trades at a price to sales ratio of 1.58. Groupon is best ignored until their strategy and earnings come back.
Conclusion
Creating a unique and defensible position is critical for the success of any business. Bankrate has already proved its ability to grow the brand and make itself known to consumers. The decreasing unemployment rate and gradual economic recovery will help to boost demand for its financial products. Additionally, it is not extremely overpriced and can be picked up for less than 20 times expected 2013 earnings.
The article 1 Internet Company to Watch and 3 to Ignore originally appeared on Fool.com and is written by Joshua Bondy.
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