WebMediaBrands (WEBM)

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The New Jupitermedia? 1 comment
by: Dan Wieman January 27, 2009 | about stocks: JUPM
Dan Wieman
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Become a Contributor Submit an Article Font Size: PrintEmail TweetThis I just received my proxy statement for Jupitermedia (NASD: JUPM) regarding the sale of its Jupiterimages division to Getty. The division is being sold for $96 million. Jupitermedia’s current market cap is $18 million, but there are some good reasons for this.

The New Balance Sheet

Looking at its most recent balance sheet as of September 30, 2008, Jupitermedia has almost $98 million in goodwill, and it is likely that a majority of this will disappear upon the sale of its images division to Getty. Jupitermedia noted that $39 million of its intangibles were related to its image library in its 10-Q. Jupitermedia also had $78 million in long-term debt outstanding as of the end of September.

As an investor, I am hoping that Jupitermedia follows the crowd with regard to this cash and focuses on deleveraging. Paying down its long-term debt would seem to be a top priority for the company. Following the sale and debt reductions, the balance sheet will hopefully be a little cleaner, and the business a bit simpler.

Another reason to focus on debt reduction is management’s poor capital allocation decisions in the past. I hope they make the more conservative move to pay down debt. I covered the history of Jupitermedia in my introduction to the company, but the quick summary is that the company sold several businesses in 2005 and 2006, then used the cash to buy the image businesses that it is now selling to Getty for quite a bit less than it paid.

In effect, what is likely to happen following the sale is that much of its balance sheet intangibles will be replaced with cash, but with no real increase in shareholder value.

Expected Income

On its income statement, the images division comprised the bulk of its revenues. The remaining media business reported $7.6 million in quarterly revenue, $6.9 million in expenses, resulting in about $700,000 in quarterly operating income. Again, I’m hoping a lot of its non-operating adjustments are eliminated after the sale, so the remaining business looks to make about $2.8 million per year with net margins of 9-10%. Given expected declines in advertising revenue, I would expect that this business will have its struggles in a down economy.

Valuation

Assuming net operating margins decline to 5%, the remaining business will produce about $1.5 million in annual operating income. This would price the business at about 12x earnings. The company will hopefully have a good amount of cash remaining on its balance sheet as well. Assuming the company has $20 million of cash remaining, and the remaining business is also valued at about $20 million, I expect that Jupitermedia is about 50% undervalued. So there is some upside remaining, but investors should not expect a return to 2006 prices by any means. That value is long gone.

New Name

Jupitermedia will soon be known as WebMediaBrands, Inc., so be on the lookout for this change in the next few months.

Disclosure: The author owns Jupitermedia.
http://seekingalpha.com/article/116689-the-new-jupitermedia