Marchex: Business Model Transition Is Succeeding

This post is excerpted from a letter by MOI Global instructor Jim Roumell, partner and portfolio manager of Roumell Asset Management, based in Chevy Chase, Maryland.

Marchex reported Q4 revenue of $23.1 million, up from $21.8 million in the comparable 2017 quarter. FY 2018 revenue was $85.3 million, down from FY 2017 revenue of $90.3 million. MCHX continues to operate on a cash-flow neutral basis. Most important to the MCHX story, analytics revenue was $10.9 million for the fourth quarter, compared to $7.4 million in the comparable 2017 quarter. For the year, analytics revenue was $35.4 million, up from $29.4 million in 2017.

Like RUBI, our MCHX’s investment thesis was that of a turnaround. The consensus view two years ago was a company with a dying lead-generation business. Today, the company has effectively moved its business from an online marketplace business getting paid to generate phone leads for its customers to one analyzing phone calls to help clients strengthen their telephone sales and servicing functions. MCHX, with over $100 million invested in its analytics software platform over the past several years, believes it is the leader in the space providing call analytics services to verticals like auto, healthcare and telecommunications businesses.

Investors have taken note of MCHX’s successful turnaround. Its shares have materially risen over the past several months as the segue to an analytics-focused company came into full view. To further accelerate the company’s leadership in the call-analytics space, MCHX made two purchases in the fourth quarter – privately-held Telemetrics and Callcap. The company spent roughly $35 million in cash (50% of its cash holdings) to purchase these two companies, in addition to issuing shares.

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