Company Description: Marchex, Inc. was founded in 2003 and is headquartered in Seattle, Washington. Marchex operates two business lines. Marchex Search Analytics is the company’s legacy business (often referred to as its marketplace business). It provides a product for search marketers that drive phone calls from search campaigns, as well as attributes inbound phone calls made directly from paid search ads and landing pages to a keyword. The company’s primary focus is on its second business line – emerging mobile advertising analytics software products. Its products include Marchex Call Analytics, an analytics technology platform that provides data and insights to measure the performance of mobile, online, and offline advertising for advertisers and small business resellers, and Omnichannel Analytics Cloud, which provides marketers the ability to quickly see which media channels are driving high-value phone calls so they invest in the right media.
Investment Thesis: MCHX is a super well-capitalized company leveraging its legacy online telephone lead-generation marketplace business into a leading phone call analytics platform. The company continues to segue into a phone analytics business providing customers with actionable data from dissecting customer telephone calls. When a client engages, it uses a MCHX generated phone number that allows the company to track the number of calls generated by a particular ad campaign, the average length of each call, what percentage of calls resulted in a sale, etc. Companies can use this information to determine the efficacy of ad campaigns designed to generate phone calls. MCHX has spent roughly $90 million in R&D in the past three years developing its analytic platform, below the company’s market capitalization.
Current Market Valuation:
Shares 44mm @ $2.62/sh = $115mm
Net cash $85mm
Enterprise Value $30mm
Revenue $100mm
Free Cash Flow Breakeven to positive
Key Considerations:
– The company is cash-flow neutral even during its transition into an analytics-dominant platform. In fact, MCHX’s confidence in its cash needs and the stability of its business resulted in the company recently paying out a special 50 cent dividend.
– MCHX continues to win new customers and picked up roughly 40 new customers in 2017.
– MCHX signed a partnership agreement with Facebook eighteen months ago in which FB allowed the company to embed their technology, allowing advertisers a third-party source to measure their advertising spend.
– Insiders own 20% of the company’s common stock.
Insider Monkey’s Take: Marchex Inc (NASDAQ:MCHX) looks more promising than the previous three stocks. We have reported on Prescott Capital’s MCHX purchases in the past. Unfortunately, Prescott Capital has recently been selling its holdings. On the other side of the trade was probably Edenbrook Capital that’s been purchasing Marchex shares as recently as May, paying $2.65 per share on May 10th. This is another advertising related stock that is facing stiff competition from Google and Facebook. I wouldn’t recommend a position in this stock either.
This article is getting quite long. I will split it into two article. I will publish the next installment of this article on Monday discussing other stocks in Roumell’s portfolio like Hall Financial Services (HALL), Sandridge Energy (SD), Paratek Pharmaceuticals Inc., (PRTK), A10 Networks Inc., (ATEN) and many other stocks.
