First, the numbers. Analysts were expecting earnings to soar 58% higher to hit $0.19 a share, with the top line climbing 77% higher. Those may seem like lofty goals for a company that thrives on referrals to banking institutions at a time when higher rates seem to have cooled interest in borrowing interest, but there's more to Bankrate than that. The company wound up growing revenue by 90%, with earnings per share (before stock-based compensation) leaping to $0.21.
Even though we had better start leaning on actual reported profits now that stock-option expensing is here to stay in 2006 -- in Bankrate's case, it means earnings of only $0.14 per stub -- the Wall Street targets are issued without the stock-based hits.
The beauty of Bankrate lies in its organic traffic. Companies like Blue Nile (NASDAQ:NILE) and 1-800-Flowers (NASDAQ:FLWS) have complained about keyword bidding growing out of control, but Bankrate's syndicated content draws viewers to Bankrate.com from all over, accounting for 96% of the company's growing page views. Higher rates may be freezing the refinancing market, but Bankrate's got the suddenly buoyant CD and money market referrals to produce these days.
Alas, Bankrate's secondary offering is a downer. Two million of the 2.3 million shares that will be offered are being sold by the company, and one has to wonder why a profitable, cash-rich company like Bankrate needs to raise funds and dilute existing shareholders. It's not as if Bankrate could be jockeying for major acquisitions; it would be a conflict of interest for the company to pursue any of its financial sponsors. Maybe there's an opportunity to expand in new areas by pecking at a company like Homestore (NASDAQ:HOMS) or a distressed player like HouseValues (NASDAQ:SOLD), but the market is unlikely to warm up to those deals.
Shares of Bankrate were singled out to Rule Breakers subscribers back in November. David Gardner ultimately recommended that readers lock in a 57% gain and move on to greener growth-stock pastures. Until we get a clearer indication of what the company plans to do with its newfound greenery, it would be difficult to resist the temptation to cash out at these lofty levels.
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Longtime Fool contributor Rick Munarriz has used Bankrate's site plenty in the past, but he does not own any of the shares mentioned in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
