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SeekingAlpha”: Even After Marchex Stock Droped More Than 45%, Last Week Its Still Overvalued

Posted on the 22 September 2014 by Worldwide @thedomains just covered Marchex and noted even though shares were down 45% last week and is down over 66% since July since July its still overvalued.

The post was written by Ariana Research:

“On September 18th, 2014, Marchex Inc. (NASDAQ:MCHX) (“Marchex”, “MCHX”, or the “Company”) released an 8K, which subsequently resulted in a decline in the equity value of ~45% for the day, or ~66% since the short was originally recommended this past July. Although the business is most likely worth no more than its net working capital of roughly ~$100MM, I believe it is prudent to take a majority of gains off the table.”

The drop seems to have been related to Marchex non-domain business but since Marchex backed off its plan to spin off its domain division Archeo, if you own shares of Marchex for its domain name business the rest of the business is hurting the shares.

“The 8K noted a reduction in FY14E call-driven revenues, and importantly, the wind-down of its third-largest customer Allstate (NYSE:ALL), which comprised roughly ~13% of revenues. Allstate sought to transition to a fixed-fee model versus the current variable rate.”

“Generally speaking, whenever a company’s equity value is halved in one day, it is the value investor’s gut reaction to take a glance. Although I think it is prudent to take short gains off the table, I do not believe a long position in MCHX today is warranted, given the poor quality of the business and the management team’s reputation. This is a particular issue when it comes to the issuance of equity/dilution of shareholders and the value destruction from the numerous strategy shifts over the years.”

” Astronomic Valuation for a Low-ROIC Business: MCHX trades at ~49x EBITDA and at a meager 1.2% FCF yield. For a company that generates sub-10% returns on invested capital, the valuation is highly stretched by all means. Further, the Company will not grow into its valuation, as the Company is only expected to generate ~$17MM in EBITDA (inclusive of stock comp) in FY14E, or at 28.5x EBITDA. Post-equity decline, MCHX trades for ~25x adj. EBITDA excluding stock-based compensation (the Company adds this back). Furthermore, when stripping out one-time domain sales, the multiple is even higher. On an EBITDA basis, we firmly believe the Company is still over-valued.”

You can read the full post here.

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