4 Reasons to Stick With Ancestry.com

One of the biggest concerns I've heard about Ancestry.com (Nasdaq: ACOM  ) is that it's just a fad, or a toy for hobbyists. Most people don't realize the Provo, Utah-based company has been around since 1983. For almost 30 years the company has grown and adapted from its publishing company origins into the genealogical research giant it is today. Longevity might not win over investors on its own, so I'm laying down four other reasons that Ancestry is a great stock.

International growth
Ancestry operates websites in eight countries outside of the United States: the United Kingdom, Canada, Australia, Germany, Italy, France, Sweden, and Japan. Researchers are constantly adding documents to Ancestry's databases, improving the company's network effect in the process.

The more documents available to consumers, the more valuable a tool it becomes, especially in this day and age when families are spread across the globe. Here's an example of the lengths Ancestry researchers go to: It recently expanded its collection to include records from German church books that are 300 years old.

All told, Ancestry's database holds more than 7 billion records.

Technology and media
Without a doubt, technology is crucial to Ancestry's business. Beyond the infrastructure that maintains its databases, the company proves to be adept at utilizing innovation and marketing to reach consumers.  The company also co-sponsors a successful show on NBC, Who Do You Think You Are, which analyzes the family history of celebrities. The show is returning for its third season this fall.

More than 1 million people have downloaded Ancestry's mobile app and Ancestry's website has an online community built right into it. The business of drawing connections between family members, past and present, fits hand in hand with the pervasiveness of social media in our society.

Modern family structure
The New York Times published an article last month about the changing make-up of families, and the effect it has on family trees. Some families go as far as to outline "emotional" and "genetic" family trees, or family forests, as many families are too complicated to explain with just one tree.

As the article points out, tracing a family tree is not necessarily confined to hobbyists; legitimate health and legal implications drive much of the research. Regardless of a consumer's motivation, the demand for evidence and answers is a boon for Ancestry.

Competition
There may be a handful of much smaller rivals floating around out there, but none of them are up to the task of taking down Ancestry. No one else has billions of documents online or co-sponsors a television show on a major network. This cheese stands alone.

The lack of competition allows Ancestry to spend quite a bit of revenue on marketing and advertising to build out awareness. This is common among other pure-play online or Internet businesses.

Company

Marketing/Advertising Costs

2010 Revenue

M/A as % of 2010 Revenue

Ancestry $94.6 $300.9 31.4
salesforce.com
(NYSE: CRM  )
$605.0 $1,305.6 46.3
Qlik Technologies
(Nasdaq: QLIK  )
$122.4 $226.5 54.0
NetSuite (NYSE: N  ) $92.8 $193.1 48.1
OpenTable
(Nasdaq: OPEN  )
$21.7 $99.0 21.9

Source: annual reports.

Qlik Technologies takes this idea to the next level, but you can see that all of these companies are thinking along the same lines. The best-case scenario for the companies above is that in a few years they are synonymous with the product they're selling in the eyes of consumers and other companies.

Going forward, Ancestry will be able to cut back on marketing and advertising costs, resulting in tremendous margin growth. The windfall will head straight for the bottom line, or because this is a "best-case" scenario, straight for investors' pockets.

Foolish takeaway
Family has always been complicated; Ancestry's recipe for success is not. The company is on top right now, and it will stay there provided it continues to expand into foreign markets, embrace media and technology, and position itself as the go-to source for all things genealogy-related.

Interested in more stock ideas? Click here for The Motley Fool's special free report "5 Stocks The Motley Fool Owns -- And You Should Too".

The Motley Fool owns shares of Qlik Technologies. Motley Fool newsletter services have recommended buying shares of salesforce.com, Ancestry.com, OpenTable, and Qlik Technologies. Motley Fool newsletter services have recommended shorting salesforce.com. 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. The Motley Fool has a disclosure policy.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. Check out what she's keeping an eye on by following her on Twitter @TMFDuffy.


Read/Post Comments (6) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2011, at 8:14 PM, TMFRhino wrote:

    Nice article, Aimee.

  • Report this Comment On September 09, 2011, at 8:26 AM, L69Z28 wrote:

    Never thought of Ancestry as an investment. Thanks Aimee for the writeup. I myself am a subscriber at Ancestry.com and also have their FamilyTree Maker 2011 on my laptop. Very interesting tracing your roots.I have added this to my Watchlist and am going to do a little research on this stock idea.

  • Report this Comment On September 09, 2011, at 8:49 AM, NorthonCharles wrote:

    Nice Article - It's probably worth mentioning that the 1940 Census data is set to be released in 2012. This significant new content may be a revenue growth driver. As a user - I have let my subscription lapse but will certainly renew to update my information and expand my research using this new content.

  • Report this Comment On September 09, 2011, at 1:37 PM, montejo wrote:

    Well put. Don't forget they have no debt.

  • Report this Comment On September 13, 2011, at 1:05 AM, strelna wrote:

    You do not address the immediate question an investor would ask: why would a subscriber come back after a flurry of interest? This does not appear to be a 'subscriber model' but a 'one-off' model. Thus I am impressed but not surprised by the growth but hesitate over a price which may not reflect long-term durability.

  • Report this Comment On September 14, 2011, at 4:54 PM, BioBat wrote:

    I'm with strelna. Seems to me a subscriber would subscribe, find out what they want to know and jump out. It doesn't seem like there is all that much 'stickiness' for this type of service for most people. Certainly not at $35 a month if you want to search outside US records (something you could do a lot cheaper on your own through many online local archives).

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