Why WebMD (WBMD) is Sinking on Tuesday

NEW YORK (TheStreet) -- WebMD (WBMD) is sinking on Tuesday after warning of weakness in its first quarter.

By midday, shares of the online medical encyclopedia have taken off 8.1% to $43.30.

In its first quarter ending March, management anticipates sales of $130 million to $133 million, above $128.7 million consensus, and full-year revenue of $545 million to $575 million, compared to estimates of $568.03 million.

However, the New York-based business warned of softness in the first quarter.

"The first five weeks of sales activity does not reflect year-on-year growth, which is in contrast to the sales momentum we experienced in the fourth quarter of 2013. This change in sales activity does not appear to be the result of any macro issues within our markets," said CEO David Schlanger in a statement.

"The change could be attributable to various factors, such as the continued shift in some of our customers' budgeting and buying patterns, which makes comparison to prior periods and forecasting more challenging."

If weakness in sales should persist, the company said it would impact the rate of revenue growth in the latter half of this year.

For the fourth quarter, the company expects fourth-quarter revenue between $145.5 million and $146.5 million, compared to Thomson Reuters' expectations of $144.43 million, and around 10% higher than the year-ago quarter. Per-share earnings between 23 cents and 25 cents came in above consensus of 18 cents a share.

The board approved an increase of $50 million to the existing stock repurchase program. The amount currently available for buybacks totals $70 million.

TheStreet Ratings team rates WEBMD HEALTH CORP as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate WEBMD HEALTH CORP (WBMD) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 465.1% when compared to the same quarter one year prior, rising from -$0.89 million to $3.23 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.7%. Since the same quarter one year prior, revenues rose by 11.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • WEBMD HEALTH CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WEBMD HEALTH CORP swung to a loss, reporting -$0.44 versus $1.07 in the prior year. This year, the market expects an improvement in earnings ($0.25 versus -$0.44).
  • Currently the debt-to-equity ratio of 1.86 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 5.96, which shows the ability to cover short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, WEBMD HEALTH CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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