Why an Ancestry.com Buyout Makes Too Much Sense

The following video is part of our "Motley Fool Conversations" series, in which Chief Technology Officer Jeremy Phillips and senior technology analyst Eric Bleeker discuss topics around the investing world.

Leading genealogy website Ancestry.com is on the sales block, according to recent reports from Bloomberg. Both Eric and Jeremy are investors in the company; it comprises 7% of Jeremy's personal portfolio, while Eric purchased the stock for a portfolio he runs on Fool.com. From that perspective, they'd be sad to see it go, as both believe in the long-term potential of the company to deliver returns beyond a buyout. 

However, Eric notes that private-equity firms should be licking their chops while examining Ancestry.com. The company has a massive subscriber base of 1.9 million users but also offers limited upsell services beyond its main "U.S. Discovery" basic offering. Eric sees a scenario where the company could continue racking up large revenue gains by offering upgraded services -- possibly involving DNA -- to its most loyal customers, even if subscriber growth slows. With the company trading at less than 10 times cash flow along with ready catalysts, that's a dream scenario for private-equity firms, and Eric says he'd be surprised if no one scooped the company up.

One company that's been rumored to have an interest in Ancestry.com is Facebook. While investors were excited about Facebook before its IPO, the Fool had published a report telling investors to avoid the company and suggesting a different tech IPO to invest in. That report is still available for a limited time and is just as important as the day Facebook IPO'd. It's named "Forget Facebook -- Here's the Tech IPO You Should Be Buying," and it details a much better social-media stock that has a longer runway for growth than Facebook. The report won't be available forever, so get access today -- it's totally free.

Eric Bleeker has no positions in the stocks mentioned above. Jeremy Phillips owns shares of Ancestry.com. The Motley Fool owns shares of Ancestry.com, LinkedIn, and Netflix. Motley Fool newsletter services recommend Ancestry.com, LinkedIn, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 25, 2012, at 2:08 PM, cattywampus wrote:

    You guys are getting some volume variation in some your video segments. The intro music is loud but the spoken parts are low in volume. I like the video overall, so much more info available than the written word. Gives you a real feel of personal experiece. As often stated wriiten and verbal communication accounts for less than 10% of the total available. Keep up the good work, looking forward to more.

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