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Ancestry.com's Family-Sized Returns

If potential bidders thought they'd be getting a price break on Ancestry.com (Nasdaq: ACOM  ) after its second-quarter results, they underestimated the popularity of the country's leading premium genealogy website.

Ancestry.com posted blowout quarterly results tonight, and it couldn't have come at a better time. The New York Times' DealBook blog reported earlier this week that a few private equity-firms were in discussions to acquire the subscription-based website operator. The report indicated that the final bids won't be due until early August, but that the company's performance on Wednesday night would determine whether the site accepts an offer in the mid- or high $30s.

If the chatter is legit, don't be surprised if the buyout price approaches $40. Ancestry.com came out ahead on nearly every metric. Revenue for the quarter climbed 18% to $119.1 million, comfortably ahead of the 16% uptick Wall Street was targeting. Given the scalable nature of this model, net income climbed 20% to $20 million, or $0.44 a share. Analysts were eyeing a profit of $0.41 a share.

Ancestry.com closed out the quarter with more than 2 million subscribers, a 20% spurt over the past year and a 7% increase over this year's first quarter. Perhaps the most encouraging metric was that monthly churn clocked in at 3.4%. Losing 3.4% of your subscribers a month may seem high, but this is a sharp improvement over the 4.6% monthly churn during last year's second quarter.

Ancestry.com sees essentially flat net subscriber growth during the second half of the year, but the revenue range of $473 million to $480 million for all of 2012 is nicely higher than Wall Street's estimate of $466.2 million.

The premium website operator has gotten smarter about using free tools to grow its business. Making some of its records searchable through Google (Nasdaq: GOOG  ) is driving natural traffic, and subscriber acquisition costs have fallen by nearly 8% to $88.11 per gross addition over the past year. Pair that up with the welcome decline in churn, and the model grows even more attractive.

Ancestry.com also recently rolled out a beta version of its Facebook (Nasdaq: FB  ) app that lets subscribers incorporate living family members and their snapshots into their family trees.

The encouraging developments don't mean Ancestry.com should call off the reported sale of the company. We won't know until early next year the ramifications of Comcast's (Nasdaq: CMCSK  ) (Nasdaq: CMCSA  ) NBC Universal cancellation of Who Do You Think You Are? after three seasons. There will also always be the fear that someone will be able to take on Ancestry.com at a price point far lower than the $18.84-per-month average the company is collecting.

It has a chance to go out on top, and no one would blame Ancestry.com if it didn't make a public appearance at next year's family reunion.

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The Motley Fool owns shares of Ancestry.com, Facebook, and Google. Motley Fool newsletter services have recommended buying shares of Ancestry.com and Google. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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