WebMD Health Sees Vital Signs Improving, To Report Q3

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WebMD Health nearly lost its pulse last year as profit plunged into losses and its stock dropped more than 60%.

But the leading health-information website operator has been gaining strength. Earnings are growing again and the stock has come back to life, up nearly 150% for the year to date.

After each earnings report delivered so far in 2013, shares spiked.

Third-quarter results will be reported on Tuesday. Analysts expect a better quarter than in Q2, which was better than Q1. They forecast a Q3 profit of 25 cents a share, up from a loss of 6 cents a share a year earlier, and expect a 10% revenue gain to $130 million, according to a Thomson Reuters poll.

Earnings reports aren't the only reason shares have climbed.

Icahn Stock Buyback

On Oct. 21,WebMD's ( WBMD ) stock jumped 10.5% after the company announced it had agreed to buy back all 5.5 million shares from its largest stakeholder, billionaire investor Carl Icahn, and his affiliates.

That brought total share buybacks since June 30 to 10.8 million shares.

"It took people by surprise," said S&P Capital IQ analyst Scott Kessler. "People thought the stock would be sold by Icahn and then there would be excess supply. But by buying its own shares, the company suggests they see value in the shares."

This year's all-new top management does indeed see value. Chief Executive David Schlanger is the third person put into that job since January 2012. He and the new president and chief financial officer are not new to the firm, however; they've worked in other management posts there for years.

The buybacks, Schlanger told IBD in a phone interview on Wednesday, are a reflection of the company's belief in the "strong growth opportunities ahead."

"What's going to drive our earnings are the fundamentals of our business and the opportunities being created by the (changes) taking place in health care and our unique position in the health care ecosystem," he said.

It doesn't hurt that drug companies, feeling better about their own businesses, have taken out more advertising with WebMD this year.

WebMD operates a number of websites tailored for consumers and health professionals but its flagship, WebMD.com, gets the bulk of traffic. Citing research from comScore, a WebMD spokesperson says WebMD.com is the leading individual consumer health site, with more than 12 times the traffic of the next largest competitor.

According to comScore data, WebMD Health websites comprise the top source of health information on both desktop and mobile devices in the U.S.

In September, comScore data show, the company's sites attracted 34.3 million unique visitors on desktop computers, up 9% from a year earlier. They garnered 33.4 million unique visitors by way of mobile devices in August, the last month for which data are available, up 174% from a year earlier.

WebMD dispenses health care information to consumers on everything from diabetes to sunscreens. In August it launched a "health care reform center" to help people understand the new health insurance market under ObamaCare.

Most of WebMD's overall medical content is developed in-house and almost all of it reviewed by physicians. That's different from most other health sites, which aggregate much of their content from third parties, Schlanger says.

Websites For Health Pros

With its Medscape brand and website, the firm provides information and services to physicians and other health care providers. From this, it tallies online traffic of about 5.5 million physician sessions a month.

The firm's third line of business, WebMD Health Services, provides management tools and services, including private portals, to health plans and employers. Some of its larger clients includeWellPoint ( WLP ),Boeing ( BA ) andStarbucks ( SBUX ).

In May, that WebMD arm landed its largest contract ever, from Blue Cross and Blue Shield, to provide health-information support to more than 5 million federal employees starting in January 2014. The value of the award was not disclosed.

"There has been a lot of activity and a lot of changes over the last couple of years," Kessler of S&P Capital IQ said. "The fundamentals are improving and we think there will be further improvements."

The changes weren't so good in 2012. WebMD that year lost $20.3 million, or 40 cents per share, as pharma customers cut back ad spending, still cautious from "patent cliff" expirations and concerned about regulations.

The loss wasn't a surprise. Management had warned early in the year that it probably wouldn't meet estimates, sending the stock down -- and down. Before the year ended, the share price had sunk below 14 from as high as 40 early in 2012.

In December, WebMD said it would lay off 250 people, or about 14% of its workforce.

On May 7, when it reported Q1 results, it was announced that then-CEO Cavan Redmond would leave immediately, after holding the job for less than a year. Revenue in the quarter had improved, but the company still lost 3 cents a share.

Redmond, a former Pfizer executive, had replaced an interim CEO who had taken over from CEO Wayne Gattinella, who resigned in January 2012 after trying unsuccessfully to sell the company.

With the focus now on building the business, Schlanger told IBD in the recent interview that "the company is not for sale."

While advertisers may be feeling more optimistic, WebMD's new flexible pricing schemes may have spurred more ad buys, analysts say.

Schlanger says his team plans to better utilize the consumer and physician ends of the business so that the two may communicate and share data with each other virtually. A test is under way, with some physicians sending instructions to patients through a WebMD app.

"There's a lot more to come. We're heavily focused on building that connectivity," Schlanger said.

WebMD is trying to get more advertisers to pay for mobile ads as more consumers use mobile devices to access WebMD's content.

While WebMD has been attracting more unique desktop users, page views on desktops fell 21% in Q2 as views on mobile devices rose, Goldman Sachs analysts said in a research note. Around 37% of page views came from a U.S. mobile device, up from 34% in Q1, they wrote.

But Schlanger indicated in a conference call in late July that the rate of decline in desktop views since Q2 has abated. And at a Citigroup tech conference in early September, he said that PC traffic trends had picked up in recent weeks.

While mobile is on the rise, monetizing it presents "significant challenges," the Goldman analysts said.

Schlanger admits mobile ad revenue "has been modest." Likening mobile to the early days of TV and the Internet, he said: "You have to build the audience first and the advertisers will follow."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BA , SBUX , WBMD , WLP

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