Ancestry.com's Shares Got Crushed: What You Need to Know

Editor's Note: A previous version of this article incorrectly stated that Wedge Partners issued lower guidance; the company doesn’t issue earnings estimates. The Fool regrets the error.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online genealogy expert Ancestry.com (Nasdaq: ACOM  ) hit a dead end today, falling as much as 11% on very heavy volume.

So what: Analyst firm Wedge Partners just issued a cautious research note on Ancestry, highlighting that a recent change to subscription pricing probably wasn't factored into management guidance. After Wedge published its worries, Bank of America chimed in by calling the concerns "overdone." However, that applies more to the market reaction than to Wedge's research: "In my opinion ACOM's shares were undervalued prior to the publication of my note and I believe them to be even more so now," said Wedge analyst Ryan Hunter, who repeatedly pointed out the very minor top-line impact of the pricing change.

Now what: Raising short-term fees while offering long-term discounts looks like an attempt to lock customers into longer-term commitments, and Wedge worries about sticker shock on those longer contracts. These changes can cut both ways: Detractors see Netflix (Nasdaq: NFLX  ) taking a huge hit to subscriber counts from its recent rejiggering while Sirius XM (Nasdaq: SIRI  ) enthusiasts see nothing but dollar signs in a long-delayed rate increase. Maybe I'm naive, but I'd like to think that Ancestry's leadership has done the math and arrived at a generally positive outcome from these changes. Then again, I also believe that Netflix will do all right.

The proof is in the pudding: Add Ancestry.com to My Watchlist.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Motley Fool newsletter services have recommended buying shares of Ancestry.com and Netflix. Motley Fool newsletter services have recommended buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.


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  • Report this Comment On September 13, 2011, at 6:29 PM, TMFZahrim wrote:

    Actually, Wedge doesn't issue earnings estimates. The article is due for a correction in the morning, since I now have the original note in my hands. Sorry for any confusion.

    Anders

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