Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
So what: Ancestry reported its fiscal 2010 numbers last night, and as you might imagine (from the run-up), the news was pretty good. Revenues rose 34% for the year. Profits were up 49% to $0.76 per share. And the online genealogy website reported a 31% increase in subscribers for the year, including 203,000 "gross" new subscribers in the fourth quarter alone.
"Gross," by the way, isn't meant as an insult. It's an acknowledgement of the fact that when investing in subscription services companies like Ancestry.com, you need to keep a close eye on the churn rate. Gross additions are simply the number of new customers who sign up for the service, before deducting folks who close their accounts, to arrive at the new number for "net subscribers."
Now what: So 2010 was a good year, and 2011 is looking pretty nice for this recent Motley Fool Rule Breakers recommendation as well. The 31% subscriber growth allowed Ancestry to double its free cash flow to $60 million in 2010. 2011 guidance calls for nearly as strong 24% subscriber growth and revenues growing in tandem. If free cash flow keeps up its end of the bargain, Ancestry could rake in close to $75 million this year, en route to what analysts predict will be near-22% long-term profits growth.
Not bad. Still, at today's valuation of 27 times trailing free cash flow and 21 times estimates for the next 12 months, the stock looks appropriately priced. My advice: If you're one of the A-Com winners today, give yourself a pat on the back for prescient stock-picking, but wait for better prices before buying more. Your descendants (read "heirs") will thank you.
Want more information on Ancestry.com? Add it to your watchlist here by clicking here.
Fool contributor Rich Smith does not own shares of Ancestry.com, but does own Google stock. Google is a Motley Fool Inside Value pick. Ancestry.com and Google are Motley Fool Rule Breakers selections. The Fool owns shares of Google. The Motley Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.