Several Reasons to Buy Bankrate Now

Takeout Play – 60%+ Upside. There are only a handful of small and mid cap Internet companies that have significant growth potential, that deliver double digit earnings and free cash flow growth, that have attractive assets, and strong management teams. Bankrate is one of those companies and likely the best positioned SMID cap online advertising company in the U.S. As such, we believe that RATE will likely be bought out soon with potential acquirers being Yahoo!, IAC, CBS, Newscorp, and Time Warner. Even the cable guys are starting to look at Internet companies. Recently, CNET commanded a 20x multiple on ’08 EBITDA. Applying that multiple to RATE’s ’08 EBITDA, we get values between $65-$70. We are talking about a HUGE 60%+ upside from where the shares are trading today. On that basis alone I would be buying the shares. In my view, RATE is a much better managed company than CNET.

Buying Back Shares – The company has a $50mn share repurchase authorization and I believe that they will buy back shares whenever the shares are trading with a $30 handle.

Wall Street Analysts are Positive – Mean Price Target of $55. These guys were the B students in their prep schools but some like Citi’s Mark Mahaney and Jeffries’ Youssef Squali do excellent work on the sector. The median price target is $55 with the lowest at $45 and the highest at $70. About 21 analysts cover the stock with over half having the equivalent of a buy rating on RATE. The rest are holds but again with price targets in the $50 range, thus they are positive at these levels. Mahaney has a $60 price target and Youssef has a $54 price target, although both have hold ratings.

Compelling Valuation – The shares are trading at 10x ’08 EBITDA with total company EBITDA growing 25%+ over the next five years. At these levels, the shares are trading in-line with the traditional media companies but RATE is growing significantly faster. In addition to EBITDA growth, the company is also growing free cash flow in the 20%+ range. The only other Internet companies that are growing free cash flow on par or faster are Google and Baidu. Further, RATE should generate close to $2.00 per share in adjusted earnings this year so the shares are trading at 20x earnings, with earnings growing 40% this year.

Diversifying Revenue Base – RATE’s revenue base has been diversifying away from mortgage related advertising, which arguably is still under pressure. However, the deposit business has been growing faster and with the acquisitions of Insureme, Nationwide Card Services, and SavingsforCollege.com, the business model is becoming increasingly diversified and is now less risky.

Site Redesign – The site redesign later this year should boost revenue yields in addition to providing better access to content and a generally better user experience.

Co-Branded Deals/New Channels – Incremental Revenues and Profits. – The Co-branded deals with Yahoo!, Realtor.com, and Move.com and new channels such as the Retirement channel should provide for a base of incremental revenues and profits.