Investors applauded Register.com's surprise profit Friday, but one analyst cautioned that the company's fundamentals need some work.
Shares in the Internet domain name registrar were up $0.88 to $7.69, far off their 52-week high of 116. Register.com (Nasdaq: RCOM) and competitor VeriSign (Nasdaq: VRSN) held a virtual monopoly in registering US domain names until a ruling creating seven new domain names was issued in November.
After Thursday's closing bell, Register.com reported results for the fourth quarter. Net income for the period totaled $2.4 million, or 6 cents a share, topping First Call consensus estimates calling for a loss of 2 cents a share. The earnings also reversed the net loss of $994,000 or 5 cents a share in the fourth quarter of 1999. Pre-tax income was $6.6 million, or 15 cents a share.
Earnings for the fourth quarter include a $4.6 million gain from Register.com's investment in a private company. Before taxes and the gain from this investment, fourth-quarter net income was $2 million, or 5 cents per share.
Fourth-quarter cash earnings, or net income excluding amortization of goodwill related to acquisitions, were $6.3 million, or 15 cents a share.
For the year, net revenue increased to $86.1 million compared to 1999 revenues of $9.6 million. Cash earnings for 2000 were $5.9 million or 15 cents a share share compared with a 1999 net loss of $8.8 million, or 46 cents per share. Before taxes and the gain from its investment in a private company, Register.com reported a loss of $147,000, or a break-even amount per share for 2000.
Despite the company's upside surprise, Legg Mason analyst Todd Weller lowered his rating on the stock to "buy" from "strong buy," citing signs of weakening fundamentals.
Weller said the company gave lower revenue guidance for the second consecutive quarter, and had light contribution from multilingual domains.
Weller said the low initial contribution from multilingual domains shattered his confidence that this area would be a key growth driver for the company. Register.com only garnered 22,000 or 2.75 percent of total multilingual registrations in the fourth quarter. This slower-than-expected contribution from multilinguals, along with overall market conditions, were blamed for the company's second consecutive downward revenue revision.
Overall, the company added 655,000 net new registrations, which was down from last quarter's 842,000.
While the company still has plenty to prove about its fundamentals, it has roughly $3 in cash per shares, which should support the company's current stock price and "could provide modest upside potential to current valuation," said Weller. He also noted that the company is well-positioned for the long term.