NS: According to a recent Bankrate
TE: Shopping around does pay. With deposit products, it's generally anyone with the cash on hand that qualifies. At certain times and for certain reasons, banks are more aggressively seeking deposits. So, to the consumer, Bankrate provides a real benefit, allowing the consumer to find those institutions. It's a win-win for the bank and for the consumer.
What's interesting is that we may have a consumer who bought a home a year ago and used Bankrate to find the best rate on the loan. Now they're back looking for the best rate on a deposit product. It's our version of the circle of life.
NS: Bankrate typically commands higher CPM rates and enjoys higher revenues per page than rivals. How do your current rates compare, and why is Bankrate afforded a premium?
TE: Historically, you're right. It's very much been the case that our CPMs are higher. I think the reason is that we connect the advertiser with an "in-market" consumer, and that our click rates and conversion rates are higher, therefore justifying that premium. We wouldn't get the CPMs we do if it wasn't working for our advertisers.
Advertising is getting increasingly Darwinian in that regard. Advertisers are able to determine what works and what doesn't, and the money obviously flows toward what works. Those sites that provide a real return on investment to the advertiser and do better, get a higher share of the dollars and/or higher CPMs. If you provide a value, it's all seashells and balloons, and you have a happy customer. If you don't produce, it's sayanora. We like our track record in that regard.
NS: Currently, about 20% of your 4 million monthly visitors are directed from a network of partners, with the remainder logging onto the site directly. Who are some of these partners, and do you expect any material change to these percentages?
TE: We have around 75 different relationships and co-branded partnerships. They range from AOL to Yahoo to USA Today to The New York Times and The Wall Street Journal. They also include ones you wouldn't readily think of like co-brands with Nasdaq, Bloomberg, CBS MarketWatch, and Earthlink. Most of them find being connected to Bankrate's brand, content, and rate tables to be very beneficial. And no, we don't expect any material changes in the near term.
NS: Though advertising spending has rebounded lately, most financial companies still only direct a relatively small portion of their ad dollars online -- around 6%, if I remember correctly. As consumers increasingly commit to making financial transactions over the Internet, how quickly will advertisers respond?
TE: We are already seeing the beginnings of that trend as advertisers become more focused on advertising ROI. I spent 20 years in the magazine publishing business (as publisher of US News & World Report), and back in the dark ages, advertisers generally didn't use to have the tools to directly measure the impact of individual media and weren't necessarily focused on it. I can tell you that has changed. Also, advertisers are just beginning to use the Internet as a branding medium. In the financial category, there is some pretty compelling evidence that consumers use the Internet for research before most important financial decisions, and the statistics suggest that they are getting more and more comfortable using the Internet as a transaction medium. Branding will surely encourage that trend.
NS: At the midway point of the year, Bankrate's online publishing revenues of $17.7 million are 14% ahead of last year's pace, and earnings of $0.28 are slightly behind. Can you comment on your outlook for the rest of the year?
TE: Sure. Actually, in the first six months, results were right in line with last year's, with two exceptions. We spent slightly more on marketing, and we had a one-time comp charge due to the severance of the previous CEO. Otherwise, we were right in line with previous EPS performance. Currently, we are expecting $38 million to $39 million in revenues and $9 million in net income for the year.
NS: After eye-popping triple-digit gains for three consecutive years, Bankrate shares have been cut in half over the past few months, largely on rate concerns. With $21 million in cash and zero debt on the balance sheet, is there a possibility of a share repurchase program at some point in the future?
TE: Actually, we finished the first half with $24 million in cash. I think the price of the stock declined because of two factors. No. 1, obviously, we were impacted along with everyone else in the financial and tech sector. Second, I don't think the company did enough to help people understand the broad and diverse nature of our product and editorial base. As a result, there were many that pigeonholed Bankrate as a mortgage and re-fi site, where we are obviously much more than that. As for a stock repurchase program, none is currently contemplated, but we are constantly evaluating what is in the best interests of our company and our shareholders, and we'll act accordingly.
NS: Given the fact Bankrate's business model is not very capital-intensive, you maintain some impressive profitability metrics, including operating margins around 24% and gross margins that have expanded from 40% to 77% since 2000. Have these figures peaked for now, or have you identified other expenses that can be trimmed?
TE: I would agree with you that the margins have been quite good. However, I don't see any real dramatic areas where we need or should cut costs, and I must tell you, that isn't my focus. We will, of course, maintain our strong cost discipline. That's been a real strength of the company. But my focus is on areas where we can grow the business, where we can take this strong platform, and strong brand and leverage it to grow the top line, and at the same time continue to enjoy significant margins. I think we've got some running room ahead of us, and I intend to focus the company on taking advantage of it.
NS: For those interested in something other than mundane day-to-day business operations, tell us what you enjoy doing in your spare time when you're not comparing numbers?
TE: Being with family and friends and enjoying the time away.
NS: Thanks again for your time, Tom.
TE: Thanks, Nathan.
To lean more about Bankrate's outlook, read the entire interview:
Fool contributor Nathan Slaughter does not own shares in any of the companies mentioned in this article. The Motley Fool is Fools writing for Fools.
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