A corporate turnaround pro I spoke with recently blamed his gray hair on his various deals -- an occupational hazard. Premature gray should be a problem at Web.com (NASDAQ:WWWW), too. The company has stabilized after more than a year of tough restructuring, but now it must find ways to invigorate growth.
Fourth-quarter revenues inched up from $12.3 million to $12.5 million, but Web.com suffered a net loss of $2 million, or $0.13 per share. In happier news, Web.com attracted 3,000 new net subscribers from the preceding quarter, for a total of roughly 155,000.
As its name suggests, Web.com provides websites to individuals and small business. It's a commodity business, so the real money comes from ancillary services like e-commerce add-ons, marketing via Google (NASDAQ:GOOG) and Yahoo! (NASDAQ:YHOO), and Microsoft (NASDAQ:MSFT) email.
To ramp up growth, Web.com says it will plow more dollars into online marketing -- a smart move, in light of the company's operating metrics. On average, it costs Web.com about $88 to acquire a customer, but over the long term, that customer generates roughly $900 in value for the company.
To grow, Web.com must find high-quality customer leads. It's off to a promising start with a push into retail channels such as Staples (NASDAQ:SPLS), Office Depot (NYSE:ODP), and CompUSA. These stores now sell shrinkwrapped software versions of Web.com's site-building tools, providing an easy and highly visible way to attract new customers. The program started in August, and it should take about a year to start generating revenue for Web.com.
Despite the company's efforts, Wall Street remains skeptical about Web.com's stock. Its shares trade at 1.3 times revenues, roughly half the multiple of the average web-hosting company. That leaves ample room for a better valuation, assuming Web.com's plans for growth pan out.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,817 out of 24,388 in CAPS.
