The explosion in price today is a trap and I would caution anyone looking to make a long term investment in this business to look elsewhere. Reasons:
1. Short squeeze is driving up the spike in price.
2. Fundamentally, the same problems that existed at $18 exist here - sure, they canned 250 people, but the customers buying from them - Pharma specifically - still face billions in patent losses that will continue to mean less $$ for advertising on sites like WebMD
3. Increased competition from sites like Facebook that offer a much larger audience at a much lower price - and as Facebook rolls out new search they will eat into $$$ spent at Google and WebMD. This is not to mention competition from the typical players plus insurers and others who are now also targeting "consumers" - just look at the rise of Mayo Clinic's consumer presence.
4. Healthcare Reform - notice how they talk very broadly and with little facts about how this will impact them. The bottom line is that yes, maybe some ad dollars might fall to WebMD, but the broader trends in healthcare - lowering costs and improving outcomes - are going to be most impacted by those with software or products used by doctors, care managers, etc. WebMD is strictly an information website - using mostly content licensed from 3rd parties - the only asset they own of any value is the brand awareness and goodwill of the name itself. Nothing else is unique, proprietary or even patented.
5. Look at the numbers - lower revenue this year than any prior year and with no real tangible plan for growth. By their own admittance their customers want shorter cycles and a smaller financial commitment.
I would certainly sell here but not at all be buying. Best case is a buyout - but that is years in the offing, if at all....
A few counter points to the ones you raise above...
#2 - Just b/c a lot of major drugs are coming off patent doesn't mean the well is dry. There are a lot of upstart drugs that will be looking to promote themselves - the wave of obesity drugs coming to market is just one example. Biotech, consumer goods companies, anything prevention and wellness related all fit into the customer based WebMD has built and is expanding into
#3 - What % of Facebook users are interested in health related information and advice? How many may be shopping for a health plan or be in the mindset to take that information in when on Facebook? People come to WebMD for health related informatoin, in this respect its a much more targeted audience.
#4 - Looking at reform and not taking into account Medscape I think is a mistake. Medscape has a huge foothold with physician practices. Just look at the valuation and buy out of ePocrates to see the perceived value and Medscape offers a better solution. WebMD also offers private portal solutions into insurers and health systems. There is a bigger picture here.
#5 - Its definitely a ship that needs to get turned around but the recent guidance is a good sign.
social media will become more specialized,perhaps this is where wbmd can get it together,but thats a ways off.i suspect you are understimating the impact of obamacare,as i likely am overestimating,we simply dont know what kind of chill rx cos are in because of say excess profits or mandatory giveaways iof they exist,but if you look at the sector its been pretty bad save for pfe the last 4 mos due to a partial break up of the anoimal division.
Agree with everything you said here. The price rise today is totally nonsensical given the current valuation, which at this point still assumes WBMD can grow, which they can't given the reasons you mentioned.