Last week, financial news reporter MarketWatch.com (Nasdaq: MKTW), owner of such popular websites as CBS MarketWatch.com and BigCharts.com, reported its earnings for the first quarter of 2004. Revenues surged 60% to $17.8 million, but onetime charges (such as those related to the company's acquisition of fellow financial information company Pinnacor) denied MarketWatch a chance at profitability this quarter. The company lost a penny a share compared to the year-ago quarter, in which it had broken even.
Things are looking brighter for MarketWatch's future, however. As we reported last month, the company broke into the big time this quarter, joining forces with Canadian publishing giant The Thomson Corporation (NYSE: TOC) and licensing its financial news content for distribution over Thomson's "Thomson One" institutional data service.
What's more, as revealed in MarketWatch's earnings press release, Thomson will be financing the cost of MarketWatch's expansion as it develops the capability to provide the agreed services to Thomson's clients. MarketWatch will be upping its payroll by 50% to meet the terms of the new contract. And unless the company joins the latest trend in outsourcing -- hiring Indian financial writers -- this could have placed considerable strain on its finances, as salaries make up the bulk of its operating costs. (No need to fret for Thomson, however. After the first year of the relationship, Thomson will begin recouping its development costs out of the companies' shared profits from the operation.)
So this quarter's anemic performance aside, things are finally beginning to look up for MarketWatch shareholders, whose investments in the company have been essentially "dead money" for the past three years. By replacing Reuters (Nasdaq: RTRSY) as Thomson's financial news provider, MarketWatch has every chance of becoming profitable again this year.
Granted, MarketWatch's projected $0.15 in profits per diluted share (and resultant sky-high P/E of 78) will not win it a place in the Hidden Gems portfolio of underpriced value stocks. Nor is the company likely to return to its all-time intraday high price of $129 (reached, incidentally, on its first day of trading on January 15, 1999) anytime soon.
But between its now-secure revenue stream and America's reawakened interest in investing and researching investments, MarketWatch investors should feel just as confident that the company has left its days as a $1.25 penny stock behind for the time being.
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Fool contributor
Rich Smith
has no interest in any of the companies mentioned in this article.
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