WebMD Not a Sure Winner

Not much has changed from what Seth Jayson had to say about WebMD's (Nasdaq: HLTH  ) fourth-quarter results earlier this year. The company is still under investigation regarding accounting irregularities at a predecessor company. And the majority of its revenue gains came from the addition of new customers through its acquisitions, rather than stronger sales of its products.

For the first quarter, the company yesterday reported that revenue increased to $271.2 million from $221.5 million a year earlier. Net income turned to a profit of $5.7 million vs. a loss of $7.4 million a year earlier.

Of the company's $271.2 million in revenue, $163.8 million came from the sale of software services for managing the exchange of data. That's an increase of $48.3 million for the division over the prior quarter. But, of that increase, $39.8 million came from customers obtained in recent acquisitions. It's legitimate revenue, but it came with a purchase cost and it shows that without growth from acquisitions, the company's data-interchange services grew only by $8.5 million, or about 7%. That's a rather small increase given that it's the primary source of revenue for the company.

The lack of significant sales growth in the data-interchange market is in large part due to heavy competition from companies such as McKesson (NYSE: MCK  ) , NDCHealth (NYSE: NDC  ) , Per-Se Technologies (Nasdaq: PSTI  ) , Cerner (Nasdaq: CERN  ) , and Quality Systems (Nasdaq: QSII  ) .

There's only one glimmer of hope that the company's services might be in greater demand going forward. That stems from the fact that through the recession and the only recently starting-to-improve labor market, doctors' visits were down significantly because people lost their benefits and saw their co-payments go up. If the job market improves significantly over the next year, then the situation should improve. More business for doctors could mean more new practices and more sales for WebMD. But, that's probably not going to have a huge impact, and it's something that would happen over an extended period of time, like several years.

Quality Systems is one of Tom Gardner'sMotley Fool Stock Advisorrecommendations. You can sign up for six months, risk-free to learn more.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.


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