Paper or Plastic at Bankrate?

A Citigroup upgrade sent shares of Bankrate (Nasdaq: RATE) higher this morning, but don't let the euphoria distract you from noticing the company's shrewd shopping spree over the weekend.

The financial-rates watcher is buying Nationwide Card Services and SavingForCollege.com today, to broaden its reach into lucrative financial-services categories.

NCS is a Web-based credit card marketer. SavingForCollege.com offers up a comprehensive list of 529 plans that are available to set money aside for college with prepaid tuition programs.

Bankrate didn't need to max out its plastic on the shopping spree. The combined cash purchases will run the company less than $30 million, with as much as another $9 million to be added as earn-outs over the next two years. It expects both deals to be accretive to next year's earnings.

Small deals, big implications
You've got to put yourself in Bankrate's shoes to appreciate the purchases. It has made a killing as the financial industry's hall monitor. If a newlywed couple is looking for a home loan or a thrifty saver wants to find a higher-yielding money market fund, Bankrate is there with the ranked lists. Sure, it makes money by selling hyperlinks and ads to the institutions, but it ultimately levels the playing field. That keeps providers honest and competitive.

However, now that the subprime meltdown has made lenders leery and the residential real estate downturn has developers counting order cancellations, even analysts can't seem to agree on whether this move creates challenges or opportunities for Bankrate.

I've always liked the Bankrate model. As rates go down, homeowners itch to look up refinancing rates. As rates go up, investors turn to the chunky yields of CDs and money market funds.

I see more opportunities than challenges in the current environment. With so many adjustable-rate loans ticking toward costly resets, the Federal Reserve's gift of lower rates should fuel a wave of refinancing into fixed-rate mortgage instruments.

So how can you not like it that Bankrate is broadening its wingspan to cover tuition planning? University enrollment rates aren't cyclical. This is a great evergreen play for Bankrate.

Instead of comparing Bankrate with Web-based borrowing specialists such as Popular's (Nasdaq: BPOP) E-Loan, IAC/InterActiveCorp's (Nasdaq: IACI) Lending Tree, or even the sorely exposed E*Trade (Nasdaq: ETFC), consider that Bankrate is the one carrying around more baskets than eggs.

Pay the banker
Credit cards and university payments aren't foreign to Bankrate. The company has been providing listings of card rates and college loan options for ages. Did you know that? Probably not. And if not, that would explain why the two deals should make those areas more prominent for Bankrate.

One can argue that Bankrate doesn't need to make these statements -- that its financials speak loudly enough. Last month, Bankrate posted stellar quarterly results, with earnings quadrupling on a 28% top-line surge.

But these are tricky times. Traffic-acquisition costs are climbing as keyword bidding rises through paid-search giants such as Google (Nasdaq: GOOG). Against that backdrop, financial lead generators such as Bankrate and InsWeb (Nasdaq: INSW) are growing nicely.

Bankrate's ubiquitous brand and its sticky syndicated reach has generated the necessary traffic, even as the perceived supply of leads itself is waning. This morning's deals will make acquiring traffic that much more cost-effective.

Attracting folks who are looking for higher-learning degrees and credit cards? That's paper and plastic, my friends.