Don't Bet Against Ancestry.com

Shares of Ancestry.com (Nasdaq: ACOM  ) hit yet another all-time high this morning, tacking on to yesterday's gains after an analyst upgrade.

Canaccord Genuity initiated coverage with a buy rating this week, establishing a $40 price target. The analyst believes that the genealogy leader's namesake subscriber-based website offers growth and margin expansion as the result of its scalability.

Widening margins isn't really a secret. Analysts believe earnings climbed 47% in 2010 on a 33% top-line uptick. Those same pros are targeting 40% bottom-line growth on a mere 19% advance in revenue.

There were nearly 1.4 million Ancestry.com subscribers as of the end of September, with the average ancestor tracker paying $17.75 a month for access to billions of digitized records and a surprisingly sticky community. The last point is relevant, because this isn't the kind of "use it once and bolt" service that one would think. Monthly churn clocks in at a reasonable 4%, meaning that folks stick around to beef up their family trees.

Ancestry.com has been blazing since going public at $13.50 a share last year, blasting past analyst profit targets in each of its first four quarters as a public company.

If the consistent positive surprises every quarter aren't enough of a catalyst, keep in mind that the second season of Who Do You Think You Are? -- airing Friday nights on General Electric's (NYSE: GE  ) majority-owned NBC -- starts next month.

Ancestry.com is the official partner of the celebrity-studded show, and curious family-tree builders can join the service that's promoted within NBC's own website. Ancestry's subscriber growth accelerated during last year's inaugural season. It's a good bet that we'll see that again starting next month.

Critics will argue that Ancestry's moat is weak. There are free lineage trackers out there including Geni.com. Google or Microsoft's Bing could easily whip up an ad-supported model. The rub is that no site is likely to ever catch up to the 5 billion digitized records or the 2 billion profiles resting in 20 million family trees. If a dot-com giant is serious about taking on Ancestry.com, its best route would be acquire it at a healthy premium.

Ancestry.com is also the company behind the popular Family Tree Maker software, that today became one of the initial third-party titles debuting in Apple's (Nasdaq: AAPL  ) new Mac App Store. The $99.99 price tag may keep it from the new marketplace's top-sellers list, but it's one more way for the company to solidify its genealogical leadership position.

The shares aren't exactly cheap, having popped 35% higher since I recommended the stock to Motley Fool Rule Breakers subscribers less than three months ago. The stock has nearly tripled since last year's IPO and now fetches just over 30 times forward earnings. The growth, margin-widening potential, and buyout possibilities justify the premium -- and getting in ahead of next month's prime-time buzz wouldn't be the dumbest thing that you, or your ancestors, have ever done.

Would you pay to subscriber to a genealogy site? Share your answer in the comment box below.

Google and Microsoft are Motley Fool Inside Value recommendations. Ancestry.com and Google are Motley Fool Rule Breakers selections. Apple is a Motley Fool Stock Advisor pick. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. 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.

Longtime Fool contributor Rick Munarriz is a fan of new stocks and has even recommended several fresh IPOs to Motley Fool Rule Breakers newsletter readers in the past. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy.


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