Bankrate Now Showing Google Ads To Prop Up Revenues

Bankrate is now a Google AdSense partner and is showing contextual ads from Google on the mortgage channel.

At first glance I thought, brilliant move, and management should have been doing this years ago but then I thought they are doing this because there aren't any graphic mortgage ads to fill the inventory on the page. This is something I observed in a prior writeup (see it here) on the lack of mortgage graphic ads on the site. I also noticed a lack of advertisers on the rate tables but that has changed and the supply side has filled in (a big positive).

The Google ads are highly relevant and should have high click-thru rates, which should help revenue growth. However, there could be a cannibalization effect on the rate tables. Management could ultimately backfill the other channels with Google ads when/if graphic advertising in the other channels becomes scarce.

Separately, Wall Street analysts are following the herd again on Bankrate and are chasing the stock. Citigroup Mark Mahaney raised his price target on the stock to $43 from $40, after instituting the $40 price target just a few months ago.

I continue to have a cautious view on the stock and I am considering shorting when/if it reaches the low $40s. The refi bump will abate soon and after that there are likely to be few catalysts to support the stock.

Mahaney points to the idea that investors will be pulling money out of equities (surely he doesn't mean Bankrate) and will be looking for places to park their cash. They will go to Bankrate to find those places (CDs and savings accounts) and that should drive traffic and revenues. I am not sold on that one.

From Citigroup analyst Mark Mahaney:
Reiterating Buy & Raising PT to $43 - We upgraded RATE on 11/30 partly on the thesis that RATE was a beneficiary of financial market volatility. We see recent events as supporting this thesis.

* 40-Year Low Mortgage Rates Likely Benefit RATE's Fundamentals - Increased online mortgage and refi activity likely boosting RATE's Mortgage Channel revenue (10% of total). We estimate that every 5% incremental RATE Mortgage Channel revenue growth could add $0.01-$0.02 to RATE's '09 EPS.

* Surging Interest In Cash & CD Alternatives Likely Benefit RATE's Fundamentals - RATE's Deposit Channel revenue (21% of total) generated over 130% Y/Y growth in Q3, and record stock fund withdraws could sustain very strong Deposit Channel growth for the foreseeable future.

* Recent Web Traffic Trends at Bankrate Show Heightened Interest - Weekly Y/Y traffic growth has been close to 30% since the beginning of November. Credit Card segment weakness and soft Q4 seasonality are material factors, but RATE's positioning as a diversified online consumer finance company is strengthening.

* Raising PT to $43 on 2010 Framework -- We are raising our PT from $40 to $43 based on 9X multiple on our 2010 EBITDA estimate of $87MM ($4.16 per share) to reach a $43 target price, adjusting for $103MM ($5.12 per share) in year-end 2009 net cash. Prior $40 PT based on 10X '09 EV/EBITDA. No estimates changes.