When WebMD Health Corp. (NASDAQ:WBMD) reported second-quarter earnings on Aug. 8, there were fears that ad-blocking would impact earnings negatively. Thankfully, investors received a quarter of double-digit revenue growth and a 1-cent earnings beat.
While traffic fell, page views, profit, revenue and advertising increased. Even with only 3% page view growth, advertising revenue grew by 13%. Let's look at the strengths and weaknesses of the most current quarter.
The good
- Net income jumped 33% while EBITDA was up 23%.
- Operating cash flow was very strong, up to $68.8 million.
- The company did not buy back any shares during the quarter but has $34 million available to do so under its repurchase program.
- Net income was up to $17.8 million, up 38%.
- WebMD hosted its first digital content new fun event in which it displayed its new video selection to over 200 brand marketers as well as agency partners.
- Management sees revenue from health services declining 10% from where it is but sees growth in the cloud-based population health platform.
- Sales challenges were also noted and expanded upon with weakness coming from budgetary pressure, slowing adoption of corporate wellness programs, client churn and slowed growth across the industry.
- Taxes, a patent infringement claim and a reversal of a tax valuation allowance impacted earnings. Management also noted that while page views increased, it saw a 6% decrease in users.
- Management is also anticipating the marketing of a new tool named WebRX, as the tool was released into six markets for testing a week before the call.
- WebMD sees potential in coming out with new products and the revenue potential it expects will come with them, with management citing a strong environment for new pharma products.
Heard from management
Starting with the following comment by CEO David Schlanger, addressing the strong quarterly results:
We are pleased to report strong second quarter results that are consistent with the high-end of the range of financial guidance we provided in May. Our revenue increased 13% to $167.6 million, net income increased 33% to $17.8 million and adjusted EBITDA increased 23% to $50.1 million. We are confident in our outlook for the second half of this year and are reaffirming our 2016 revenue and adjusted EBITDA guidance today and updating our 2016 net income guidance principally to reflect the issuance of 2.625% convertible notes during the second quarter.
Schlanger on current promotions:
We continue to expand and improve our offerings across both promotion and education to create additional touch points and drive deeper engagement with physicians. As part of Medscape submission to improve patient care, we have been helping health care professionals navigate the various changes happening within their practices as well as within the medical profession overall through various community forms, special events, medical education, publications and events.
WebMD is also looking to expand by driving site engagement while keeping both the site and its content simple. Schlanger explained:
While we're pleased with our market leadership and strength of our offering, we are continually working to improve all aspects of the WebMD experience. For example, we are implementing a new response of site design, which will dramatically improve page load times and further drive engagement with our content and services. Staying true to our formula for taking complicated or confusing topics and presenting them in a way that's straightforward and easy to understand. We continue to update and enhance our content offerings, which include investing in new video and social experience so users can more easily discover, share and interact with our content, not just to our sites but across the web.
How WebMD brings value to the customer:
Our professional marketing capabilities uniquely drive value for our biopharma customers throughout the whole product lifecycle from launch to product maturity to post exclusivity status where digital becomes the only practical and cost-effective approach.
Noting that management's goal is to attract a high quality and deeply engaged audience, Schlanger said, "According to comScore, average U.S. monthly visitors to the WebMD Health Network across both mobile and desktop on a de-duplicated basis was approximately 73.8 million during the second quarter. According to our internal traffic measures, which as we report, do not de-duplicate users across properties or devices, traffic to the WebMD Health Network reached an average of 199 million unique users per month and generated 4.23 billion page views for the quarter, representing a 6% decrease in users and a 3% increase in page views when compared to the prior-year period."
Looking ahead
The company no longer can rely on employer-sponsored wellness programs for growth. Traffic also plays a key role in the business, and with Google as the search engine most everyone turns to, management is still seeing a decline in the referrals it receives from Google
On the bright side, the company is realizing growth from its biopharma advertising business. As Schlanger said, the focus of management is to create consumer tools that not only solve real problems but also areas that require added transperancy, such as health care.
The company is still seeing a "lumpy" trend in expenses, but management sees $168 million in revenue for the third quarter, followed by $17 million to $18.5 million in net income. Currently the company derives 62% of its revenue from biopharma and medical device customers while advertising will be only 17.5% of total quarterly revenue.
The biggest advantage WebMD may have is that its platform serves an integral role in its customers' digital marketing strategy. By placing a focus on attracting a higher quality and a more engaged audience, WebMD is setting itself up for success.
Disclosure: No position in the stock mentioned.
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