Ancestry.com wants to put down some roots. The genealogy Web site hopes investors will provide $100 million in an initial public offering, valuing the whole thing at $572 million. That seems too high for Ancestry to cement a happy legacy with investors.
The firm, which bills itself as the world's largest online collection of family history resources, made headlines by linking actor Brad Pitt and President Obama in 2007. But its greatest attribute is its ability to get investors to pay for content.
The site had 1.03 million paying customers at the end of September. Each, on average, produced $16.50 a month in revenue in the first nine months of this year. So far so good. But about 4 percent of subscribers cancel every month, meaning roughly half the customer base turns over every year.
That is not the only alarm bell. As recently as June, the company, for option grant purposes, valued its own shares at $8.54 apiece, against $13.50 at the middle of the indicated I.P.O. range. The Nasdaq stock index is up more than 15 percent since then. But that would account for only a fraction of the difference, and I.P.O.'s are usually priced at a discount.
It's hard to see what else could have changed so drastically. The company increased subscribers by a net 15 percent in the year to September. And the company's operating margin increased to 14 percent in the first nine months of this year, against 8 percent in 2008. But that must have been predictable back in June, too.
Ancestry.com has other businesses that could power sales, like its Family Tree Maker software. And the retirements of the baby boomers could bring new subscribers. But even these new historians may not prove very loyal. And on the downside, selling by existing shareholders and outstanding in-the-money options will dilute investors in the I.P.O., too.
Ancestry.com leads in its niche. But pricing its I.P.O. at what looks like an aristocratic premium isn't the best way to preserve its reputation.
A Lesson in Bonds
Don't cry for investors with short memories. Bondholders who rejected Argentina's efforts in 2005 to renegotiate the terms of $23 billion in outstanding debt now look set to roll over. With a credible new finance minister in Amado Boudou and a liquid market, the country may get a new debt deal done by the end of the year. Investors should remain wary, however; they've been here before.
True, Mr. Boudou is moderating the market-hostile policies of his predecessors. He intends to restore the credibility of official inflation statistics, which many economists suspect of seriously understating inflation since early 2007. September's inflation was reported as 0.7 percent, the second successive relatively high official number.
He also wants to recover Argentina's ability to borrow internationally. To do so, he must reach a plausible settlement with most holders of the debt who rejected the settlement imposed in 2005. The new terms proposed by Barclays, Citigroup and Deutsche Bank are hardly generous. The package is expected to result in a lower recovery value than the 30 percent in the last deal, and to require institutional debt holders to subscribe for $1 billion in new financing.
However, with the sponsoring banks controlling about 40 percent of the holdout debt, Mr. Boudou's expectation of 60 percent acceptances may be low. While some investors might be tempted to await a more market-friendly government, President Cristina Kirchner's term of office lasts until December 2011 and there's no certainty that a friendlier government would replace her. Holding out on principle would risk being stuck with an illiquid asset for several years.
Argentina's 2001 default was its fourth, after defaults in 1828, 1890 and 1982 and several near misses. Thus, investors in new Argentine bonds may be exhibiting unwarranted optimism about getting repaid. The paperwork for any registration with the Securities and Exchange Commission will also raise questions about official Argentine statistics.
In these liquid markets, however, the chances are that investors will subscribe enthusiastically if the yield is juicy. Either Argentina will show that it has learned its lesson and will honor its commitments, or investors will show again that they have not.
For more independent financial commentary and analysis, visit www.breakingviews.com.
First Published: October 27, 2009, 12:45 p.m.
