WebMD Needs a Shot

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It boggles my mind when I turn on the news and watch people waiting in line for hours to get a flu shot. Being a native New Yorker, waiting in lines and complaining about it is a way of life. One company that would be wise to get a flu shot as we come into the cold and flu season is health-care online guru WebMD (Nasdaq: HLTH).

There was much information to digest in the WebMD third-quarter earnings release today; the one thing that is obvious is that the Transaction/Business Services Unit is "the straw" that stirs the company's drink. With 57% of the company's revenues and 59% of its operating profits, the segment is definitely the core of its future growth. The unit produced a 32% increase in revenues in the third quarter, although only about 10% of that was organic growth (a recent acquisition added nearly $30 million to the revenue base).

WebMD's other units include Physician/Practice Services (25% of revenues), Portal/Health Services (12% of revenues), and Porax (6%), the company's plastic technologies segment.

The firm's earnings of $0.11 per share bested last year's $0.09-per-share earnings and the analysts' consensus estimate of $0.10 per share. Its sales for the quarter of $299.6 million were 20% ahead of last year's sales (only 7.7% higher without the acquisition) and slightly edged the consensus estimate of $298.6 million.

The WebMD Health unit, which encompasses many of the Internet portal services and medical advice that have shaped the company's image, is about to undergo a change. Management, with the recommendation of its "outside advisors," has decided to sell 10% of the equity of WebMD Health in an initial public offering (sometime next year). It's obvious that the company needs cash to grow its business and ease the burden of some of that $650 million of long-term debt.

The company expects revenues for its fourth quarter to be in the range of $305 million to $310 million, which is well below the current consensus estimate of $317.4 million. Although WebMD expects growth in its Transaction/Business Services unit, it also sees a potential decline in traditional EDI (Electronic Data Interchange) services. Management added that this decline may not "be offset until the latter half of 2005."

With such heavy news, it's no wonder that WebMD shares have declined more than 5% today to a price of $7.22 per share. The company appears to be putting a bandage on its problems instead of fully treating the infection. WebMD's new management team has taken over an ailing patient in need of much care; look toward Cerner (Nasdaq: CERN) and Motley Fool Stock Advisor selection Quality Systems (Nasdaq: QSII) for health in this industry.

It's time to get healthy with these takes:

• One Quality Stock
• Diagnosing WebMD's Health
• WebMD Looks Weak

Fool contributor Phil Wohl spent more than 12 years on Wall Street and meditates five minutes every day to clear and calm his mind. He does not own shares of any of the companies mentioned.