Coffee is for closers.
It's a cold world in David Mamet's Glengarry Glefn Ross, where middle-aged men finagle, bicker, and come of age in the cutthroat world of pushing dodgy real estate investments.
"These are the new leads," the salesmen are told. "These are the Glengarry leads. And to you they're gold, and you don't get them. Why? Because to give them to you would be throwing them away. They're for closers."
Good leads are hard to find. The same can be said about online companies that generate leads. It's a pretty fickle world. Only a handful of companies have managed to do so successfully.
You have to watch out for the rest. Sure, some of the lead generators have tempted investors with the possibilities:
- Autobytel (Nasdaq: ABTL ) guides potential car buyers to local showrooms.
- HouseValues (Nasdaq: SOLD ) sells leads to realtors from homeowners who want to know what their houses are worth.
- Insure.com tries to move life insurance policies online.
All three companies are trading well below their initial highs. It's fitting. They are losing money. They don't get the new Cadillac or the set of steak knives in Glengarry Glen Ross's world.
Last night's report out of InsWeb (Nasdaq: INSW ) should be inspirational to the profitless lead generators. From 2004 to 2006, the auto insurance specialist posted a loss in all but one of those 12 quarters. Now that the company has turned a profit in each of this year's first three quarters, it's fair to promote the company to the class of closers.
It gets the coffee. It gets the car. It gets the good Glengarry leads.
InsWeb isn't alone, so let's take a look at four lead generators that are doing it right.
The online insurance lead generator has seen its shares soar fivefold over the past year. Growth and consistent profitability have been the key drivers. The company's third-quarter report yesterday touches on that perfectly. Revenue grew 23% higher to $9.2 million. Earnings clocked in at $0.10, reversing last year's loss. (You can compare it to last quarter's earnings as well.)
The company is heading into the seasonally soft fourth quarter for the industry, but there is little reason to doubt InsWeb's future. It has proven that it can acquire traffic at a cost-effective rate.
It has been a long road to redemption for InsWeb. The company still pushes several different insurance-related products, but auto insurance now makes up 87% of the company's revenue mix. It's a product that lends itself easily to the Internet, unlike more delicate policies that often require a bit more of a personal hard sell.
Bankrate (Nasdaq: RATE )
The Bankrate brand is so ubiquitous that you may not even realize the company is a lead generator at heart. It is. You may see Bankrate-provided lists of current interest rates on financial products like mortgages, money market accounts, and CDs. You may even see syndicated editorial content.
In the end, it's all about getting folks over to Bankrate.com and its partner websites. That is where financial institutions advertise to reach potential clients. Providers also pay to have hyperlinks attached to their names on the site, giving visitors one-click access to their websites. It doesn't blur the integrity of Bankrate's number-munching data; rates are what they are. However, as the platform that draws in users looking to make important financial decisions, it's easy to see why Bankrate is a perpetual winner in Wall Street's eyes.
The Knot (Nasdaq: KNOT )
If you relish the Bankrate recipe, catching The Knot's bridal bouquet is easy. Like Bankrate, The Knot is dealing with visitors on the cusp of important financial decisions. If you think taking out a mortgage is daunting, you should price what some frilly weddings are costing these days.
The Knot is there -- also offering syndicated editorial content and lively community forums -- to make wedding days special. Unless you're a banquet hall operator, florist, or wedding singer with more business than you can handle, you have no problem paying The Knot to be included in its service listings.
The Knot has cashed in on its success to offer online bridal registries and launch new websites that reach earlier and later in the courtship cycle. However, it is still primarily a lead generator -- and a refreshingly profitable one, at that.
Travelzoo (Nasdaq: TZOO )
It's easy to mistake a travel publisher like Travelzoo as one of the larger portals. The difference is that Travelzoo isn't an actual travel agent. It won't book your plans. What it will do is offer sponsored deals that feature great prices on vacation packages and last-minute getaways.
The company's "Top 20" weekly email has amassed a mailing list of nearly 12 million willing recipients. If hotels, airlines, cruise lines, and other travel providers see that they have too much capacity, turning to Travelzoo is a great way to move discounted inventory.
Travelzoo has missed Wall Street's bottom-line targets lately, but it is still squarely profitable as it expands overseas.
Go for the Glengarry leads
It may come as no surprise to learn that Bankrate and The Knot have been two of the many market-thumping stock picks recommended to Motley Fool Rule Breakers newsletter subscribers. Both companies are dynamic disruptors.
Last night's healthy InsWeb report isn't enough to land it on the scorecard. It needs a few more quarters of seasoning. It needs to build its brand, possibly through a wider net of syndicated content.
That's the key, really. Since lead generators are out there, bidding against each other to acquire traffic, the real winners are companies like Bankrate and The Knot that draw organic traffic because they are the trusted sources in their specialties.
So make sure you pursue the Glengarry leads -- and not the speculative deadbeat ones -- as an investor. They're worth it. You're worth it.