by Travis Johnson, Stock Gumshoe | December 25, 2007 6:47 pm
Continuing the rundown of the best teaser picks of the year, this one comes from the Motley Fool, specifically from their Rule Breakers newsletter, and it is the only one of the “next Google” stocks that I’ve seen teased that has gotten even close to a double so far. It reached a 141% gain that then got locked into stone when Microsoft completed their buyout of this web advertising company. Great company … can’t buy it, but it might help out Microsoft in the long run. What follows is the original post from April.
Another nice stock teaser from the Motley Fool, this time for their Rule Breakers growth stock investing service. And thank God, it’s not one of those impossible to crack tiny pink sheets Canadian mining companies.
It’s a nice idea — if you’re not going to look for the next Berkshire Hathaway, you might as well look for the next Google. Those are just about the two most popular themes out there in “next-finding” land.
And the ad also makes sure to put forth the standard bona fides of David Gardner, who runs the Rule Breakers newsletter at the Fool (which I used to pay for, though I haven’t lately):
“Motley Fool Co-founder David Gardner has made an art form of finding companies that rewrite the rules. That’s how he has found stocks ready to SKYROCKET, such as AOL in 1994… Amazon in 1997… Amgen and Starbucks in 1998 and eBay in 1999. So, the Fool wants to tell you about the NEXT Google, all you have to do is sign up for the Rule Breakers service — on a free trial, natch — and they’ll send you the special report.”
Or, if you just want to know the name of this advertising superstar, you can come to your friendly Stock Gumshoe and he will deliver. Read on!
This company is involved in web advertising — in the Fool’s words, “Just like Google, it also has built a better marketing system. And advertisers around the world are lining up with their money.”
According to the email, this firm provides both the creative marketing genius, and the quantitative analysis and ad placement services — so it sounds like essentially an internet ad agency.
This is a profitable company — and a “cash flow machine” in the Fool’s words, and one that’s expanding internationally as well as building domestic business.
And then the most tempting of teases — the “woulda shoulda:”
“If You Missed Buying Google in 2004, This May Be a Second Chance.”
Some of the specific clues in the email:
“It has built online empires for the New York Times, Visa, and XM Radio”
Business Week lauded this company in its “Hot Growth Companies of 2006” issue and said, according to the Fool, “Web advertising is fueling the new growth in tech, and [this company] has found itself in the right place at the right time… It has become one of the leaders in this emerging niche.”
They have grown through acquisitions, thanks to their “Harvard-educated CEO with a Stanford MBA.”
One of its larger acquisitions was rated by investment analyst website Seeking Alpha as the “10th Best Acquisition Ever.” (Though I contribute to Seeking Alpha through my other site, oneguysinvestments.com, I didn’t have anything to do with that article and I’m not sure I ever read it before this sleuthing job.)
“The NEXT Google produced $89.3 million in free cash flow. That’s up from $50.6 million at the end of 2005.”
So what’s this “Next Google?” What company is, in the Fool’s estimation, projected to “at least double in the next three years?”
Well, just a caveat here — the Fool special report, “The NEXT Google: The Global Digital Marketing Powerhouse” is probably actually pretty good, if past reports and newsletters of theirs I’ve seen are any indication. And I liked their newsletters back when I paid to subscribe to a couple of them (it’s been a while, but I’ve found them to be an honorable lot and I’ve learned from them).
But you’re not here with the Gumshoe because you want to read a special report or start a free trial subscription — you’re here to see what the name of this company is so you can investigate it yourself.
And the Gumshoe will comply — one moment while I adjust my craniotronic thinking machine — OK, I’ve input all the data and the “Next Google” is …
I’ve got a link to the Business Week profile that the Fool mentions a bit further down, but it confirms this — as does the Seeking Alpha post on the best acquisitions (though aQuantive barely made the list — its Razorfish acquisition is number 10).
And Brian McAndrews, the CEO, did indeed get a Harvard BA and Stanford MBA (at least, according to his online bio).
This is, as we surmised, essentially an internet ad agency — you might be familiar with one of their units, Avenue A/Razorfish, as I was (never heard of the others). They do Google ad management for their clients, and also do the other online ad marketplaces, and they handle the campaigns just like traditional ad agencies handle your magazine and tv campaigns. At least, that’s my (limited) understanding of the company.
And here’s that Business Week article David mentioned, for a little background. Remember, you can go read the article but you have to promise to come back to your friend the Gumshoe when you’re done.
So, is it really the “Next Google?” Beats me. It’s definitely got some good sales growth at better than 50%, though I don’t know how much of that is from acquisitions, and while the PE is steep in the mid-40s it’s not unreasonable if growth is going to continue at this clip (though the forward PE is actually higher than the “current Google”, according to Yahoo Finance, 31 vs. 25, which is interesting).
As with the “next Berkshire”, it may be safest to assume that “the next Google” is Google … but since AQNT has a markt cap of just about $2 billion I think the law of large numbers allows us to more readily project a strong growth future for them than for the $150 billion Google. And interestingly enough, aQuantive has actually been public a lot longer than Google — they were one of the few smallish stars of the internet boom that lived to see another day.
And as far as the share price is concerned — they aren’t back to where they were in 2001 (who is?), but today’s price is pretty close to their five-year high, and the shares have been more or less bumping around between 20 and 30 for over a year. I haven’t read their filings, so I’m nut sure why, but there have definitely been some abrupt moves in the chart over the past twelve months, so it’s possible that there will be a fire sale at some point for you if you’re interested.
I trust the Fool more than most of the other newsletter publishers, but that doesn’t mean I think they’re always right. Let the rest of us know what you think. Today is the first time I’ve seen this particular email, though the Fool claims to have released this report back in “late February” which probably means the price was between $25 and $28 when the report came out, so I’ll credit them with yesterday’s closing price on aQuantive of $27.58 when I add them to the tracking spreadsheet.
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