Berk Sure Has A Way

Why has Marchex’s stock price not withered like the rest of the tier two search stocks?  This graph shows MCHX, INSP, MIVA, LOOK, and INCX over the past twelve months:

Marchex has increased dramatically while the other players have withered.  Two likely reasons:

1) Smart domain acquisitions have masked deterioration in the rest of their businesses

2) Quarterly acquisitions make it confusing to analyze the stock

The other search players have seen their stocks swoon when the market realizes that they are shrinking, not growing.  If investors get a clearer picture of Marchex’s pro forma revenue numbers, MCHX’s stock price may wither like the rest of the tier two search players.

MCHX Value on a Comparables Basis

Let’s assume that MCHX has not overpaid for acquisitions that the domains and other acquisitions are worth what they paid for them (just this year!) – $164.4 mil for name development, $20.5 mil for Pike Street, $30.6 mil for Industry Brains and $12 mil for new domains for a total of $227.5 million.

Since I see no difference between the rest of MCHX (Enhance / GoClick / TrafficLeader) and the other tier two players, I will use revenue comps (since only INSP is making money).

Applying the aggregate revenue multiple of these comparable tier two players (1.24X) to the TTM revenue of for Enhance/GoClick/TrafficLeader ($62 million) one would arrive at an implied valuation of $76.6 mil for this part of the business.  Add that to $227.5 mil from acquisitions and $5 mil in net cash to get $309 mil valuation.  Divide that by 38.3 mil shares outstanding to get a value of $8.07 per share.

For giggles, if you use INSP as a comp against all of MCHX (the closest full company comparable since INSP owns traffic too), you get a value of $4.35 per share.

Amazingly, Marchex’s enterprise value of $890 mil (using the 10/30/05 close of $23.4), makes MCHX more valuable than INSP, LOOK, MIVA and INCX combined!  Maybe MCHX will go shopping or file a secondary!

I own puts on MCHX shares at various prices.