Online Media Stocks Poised to Run Higher?

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The role of technology as a great leveler has been very well documented, and we can’t help but notice how the internet is disrupting the traditional media businesses while creating a parallel industry from the ground up.

Even as investors continue to move out of newspaper and other traditional media stocks, there are similar avenues for investors to consider which are not very different from the earlier ones, except the fact that they are often devoid of physical appearances. Yelp (NYSE: YELP), Move (NASDAQ: MOVE), and ValueClick (NASDAQ: VCLK) are some options for investors scouting for value in the same line of business. Here is a closer look:

Yelp and Yahoo: A match made in heaven? 

Yelp is an online community positioned largely as an urban discovery platform – a role newspapers have traditionally played by helping people find places to eat, shop, drink, and relax. Much of the platforms' content is developed by the users themselves. Like newspapers, Yelp's revenue comes from local business advertising. Although far from being profitable, Yelp has been able to attract who’s who of the industry as investors and/or acquirers.

Google discovered the potential in this business model, and offered to buy out Yelp three years back. More recently, there is speculation about whether Yelp would be a strategic acquisition for Yahoo!, which is looking to expand in the mobile space under the new leadership of Marissa Mayer.

With a market capitalization of $1.6 billion and zero debt, Yelp may be a bit too difficult for Yahoo! to swallow; but equally important would be the stance of Yelp management which famously declined Google’s bid in 2010. Constantly growing top line and margins are other factors due to which management may not be interested to sell out as yet. In the most recent quarter, Yelp’s revenue grew 65%, while losses dropped to $5.3 million from $9 million a year ago.

Move a good play on the housing recovery

In a similar vein, Move operates a network of websites for prospective real estate buyers and sellers. Needless to say, this line of business also finds its roots in newspapers, which are now moving online. Over the last 52 weeks, the stock has moved in the $6.92 - $11.96 range and currently trades at around $11.5. This is largely due to a number of analyst upgrades and positive buying sentiments.

Analysts at Benchmark have raised the target for the stock to $14 after the company reported nearly 12% growth in quarterly revenue last month. Although profits declined during the period, it is not uncommon to see a quarter or two marred by higher costs in growth-stage companies. Move has got something of a tailwind with improving housing market in the country as more prospective buyers head to property websites.

ValueClick a mixutre of both business models

ValueClick is a facilitator of sorts for companies mentioned above, and has seen its valuation swell more than 50% last year. The company’s business model revolves around technology infrastructure tools that enable marketers to engage with the customers online and through mobile devices.

In the most recent quarter, the company reported a 13.7% jump in revenue to $199 million, while profits grew even sharper at 28.9% to $36 million. It also offered first quarter guidance well above Street expectations. What followed was a flurry of upgrades, which includes Jefferies as the latest to join the list with a price target of $35. The stock currently trades at around $30, meaning that there's still upside left.

Foolish bottom line 

Overall, these stocks appear to be an excellent fit for investors looking to put their greenbacks in annuity businesses. Except Yelp, none of the above mentioned companies have a strong brand recall, but these businesses are still robust and are capable of growing in double-digits quarter after quarter. However, caution must be exercised in entering these stocks as Move and ValueClick are trading near their 52-week high levels.

Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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