Bummer: Bankrate's Back.

When Bankrate (Nasdaq: RATE  ) got taken private two years ago, no one was more bummed than I. For months, I'd backed the stock as a great way to play consumers' desire for independent personal finance info, a trend that helped make Morningstar (Nasdaq: MORN  ) a star, gave rise to Jim Cramer and TheStreet.com (NYSE: TST  ) , and even fueled The Motley Fool's fires.

As evidence of the company's popularity, in 2009, the year of its takeover, Bankrate generated $37 million worth of free cash flow from its business of distributing credit card offers, mortgage rates, and other financial data on its site. At the $571 million takeout price, the company's private equity buyers got themselves a sweetheart deal, paying just 15.4 times FCF to own one of the best pieces of real estate on the Web.

Friday, they sold it back to us, reIPO'ing Bankrate at $15 a share. I probably should be cheering at getting a second chance to own it -- but I'm not.

Why not? Because today's Bankrate is barely a shadow of its former self. Two years after private equity took Bankrate in-house to "improve" the business, Bankrate's now generating just $8 million in annual free cash flow. Its market cap, according to Capital IQ, looks bloated at $1.5 billion. Worst of all, this formerly cash-rich company returns to us laden with nearly $300 million in long-term debt, $117 million of which is to be retired with proceeds from the re-IPO. I fear that so much debt will hamstring Bankrate's ability to compete effectively against much better funded rivals such as News Corp. (NYSE: NWSA  ) and Google (Nasdaq: GOOG  ) .

Granted, management promises to produce pretty dramatic improvements in free cash flow "on a go-forward basis." If this happens, such free cash can be used to pay down the debt. For the time being, however, I'm looking at a stock that costs three times what it cost just two years ago, yet generates less free cash flow.  And no, I'm not impressed.

Editor's Note: A previous version of this article referenced $245 million in preferred equity, which is being converted to common stock in accordance with the IPO. The article has been updated to reflect IPO-related changes to the company’s debt condition and to offer management’s free cash flow outlook.

Fool contributor Rich Smith used to own Bankrate, and still owns Google. The Motley Fool owns shares of Google and Morningstar, and Motley Fool newsletter services have recommended buying shares of Google and Morningstar. The Motley Fool has a disclosure policy.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 22, 2011, at 12:37 PM, DeadSirius wrote:

    There is no way BR generated $37m in 2009. They lost that much on several careless acquisitions made Q3 in 2008. If anything they're better poised now than ever to dominate a few verticals. The big obstacle now: greedy execs. Check the SEC filing for who's getting how much. If there's a huge discrepancy between senior management and the professionals who keep the company profitable, productivity will tailspin. Over-valued? Possible. Attainable? Only if the execs don't get greedy.

  • Report this Comment On June 22, 2011, at 1:38 PM, TMFDitty wrote:

    Check the financials. That's what the cashflow statement says: $39.5M operating cash flow, $2.7M capex. But yes, you're right that they also spent a bunch on acquisitions -- not ordinarily included in a FCF calculation.

    TMFDitty

  • Report this Comment On June 23, 2011, at 8:09 PM, T1D wrote:

    If you don't post the first comment I'm just going to embarrass you on a highly read blog.

  • Report this Comment On June 30, 2011, at 1:02 PM, T1D wrote:

    Some of the sites that are gaining a lot of visibility that compete with them are www.SavingsAccount.com and CheckingAccount.com

Add your comment.

DocumentId: 1510514, ~/Articles/ArticleHandler.aspx, 4/24/2014 7:06:13 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement