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Blue Nile, WebMD Holding Steady

Posted on Monday, Jun 14th 2010

According to the latest SpendingPulse report, the U.S. retail sector continued to grow, with e-commerce sales reporting their tenth consecutive month of double-digit growth. For the month of May, e-commerce sales grew 13.7% over the year. Overall luxury retail sales grew 9.7% in the period, reporting a sixth consecutive month of growth. Within the segment, one of the fastest growing sub-segments was jewelry with growth rates of 13.7% over May of last year.

Amid such positive trends, Blue Nile (NASDAQ:NILE) also saw significant growth. Revenues for the quarter grew 19% over the year to $74.1 million with EPS growing 23% over the year to $0.16. During the quarter, the company repurchased 292,100 shares for $15.2 million.

Blue Nile’s international expansion strategy is yielding good results with revenues growing 71.4% in the quarter to $9.6 million. Excluding the foreign currency impact, international sales grew 51.8%. International revenues now contribute 13% of overall sales. As part of its growth plans, the company is focusing on Asia and recently launched a Chinese website, which is also its first non-English-language site.

Blue Nile is also continuing with Web site feature improvements. It has added features such as the ability for customers to store order histories and a greater number of financing options. It  is also expanding into the handheld device market and recently launched a search application for the iPhone and Android devices. The application compares prices and quality and searches more than 60,000 diamonds. Blue Nile is already seeing improvement in traffic and claims that conversion is at an all-time high.

Analysts peg the value of the U.S. specialty jewelry market at $28 billion, with Blue Nile’s share of less than 1% of that. The recent closure of physical stores accounted for $1.4 billion sales – a market now open for Blue Nile to capture. Within the segment, Blue Nile currently accounts for almost 4.5% of the engagement jewelry segment. But the company is confident of increasing its market share by being able to offer diamonds at prices 20%–40% lower than physical store prices.

The company projects sales to grow 15% over the year for the fiscal 2010 with earnings growth of at least 20%.

The stock is trading at $52.92 with a market capitalization of $766 million. It touched a 52-week high of $67.16 in October of last year.

WebMD (NASDAQ:WBMD), the online health information provider, reported revenue growth of 20% over the year to $108 million. Public portal, advertising, and sponsorship revenues grew 28% over the year to $86.3 million and contributed 80% of the quarter’s revenues. Private portal services fell by $1.2 million to $21.8 million. The company benefited from the uptick in advertising spending, which helped grow ad revenues 16% over the year. The market was looking for revenues of $105.3 million.

Among other statistics, traffic to the WebMD sites recorded an average of 82.1 million unique visitors per month, representing growth of 33% over the year. Page views during the quarter grew 22% to over 1.8 billion pages. Online physician traffic through the site’s professional network during the quarter reached nearly 2 million monthly physician visits, and WebMD reported completion of approximately 1.5 million programs during the quarter. Medscape.com’s reach continued to grow, and nearly 130,000 physicians participated in online discussions on the site.

During the quarter, the company launched a new social networking platform for consumers called the WebMD Health Exchange. The platform builds on WebMD’s existing health communities and integrates the social health experience by enabling consumer participation in moderated communities.

The company is also expanding its presence within handheld devices. It recently launched the Medscape mobile platform for BlackBerry users in addition to the existing iPhone application. It is also testing several new health applications to launch on the new iPad. I hope that WebMD will look at Epocrates as a potential acquisition target to expand in the mobile space. With a revenue base of more than $100 million in 2009, Epocrates boasts of an active user base of 950,000 healthcare professionals worldwide and 40% of U.S. physicians. Yahoo! might be another potential buyer for Epocrates to help with the former’s ambitions of growing in the healthcare vertical.

For the full year, WebMD expects revenues of $510 million–$525 million compared with analysts’ expectations of $519.6 million.

The stock is trading at $47.30 with a market capitalization of $2.53 billion. It touched a 52-week high of $51.19 earlier this quarter.

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