Interland (INLD) Update

Interland reported earnings today. Here are some of my takes from the report and the conference call:

• My estimated fully diluted share count of 18.5 million shares (including options recently granted to the new CEO) was confirmed.

• The company has about $38 million in cash, include the receipt of the cash from the sale of their dedicated hosted business. The business was EBITDA positive this quarter, and I assume that the shared hosting business is EBITDA positive.

• The shared hosting business, will have very little capital expenditures going forward and it appears to have an annual run rate of about $48 million. The company mentioned in the conference call that the shared hosting business did $4 million in September. Interland ended the quarter with 137,000 shared hosting accounts and a 2.5% churn. The average life of a shared hosting account is 40 months. Dividing the numbers above, it would appear that the average monthly fee for a shared hosting account is about $29/Month or $348/Year. The average lifetime revenue of a shared hosting account is therefore a little over $1,000. I´ll try to verify these numbers with management.

Putting it all together: The company´s cash on the books is equal to $2.05 per share. So the value given by the market to the shared hosting business is $20 million or so. This is less than half of sales and about $145 per account. I don´t pretend to know what the true value of a shared hosting account is, but I think these numbers are low. Despite the commodity nature of the business, I have seen shared hosting accounts valued at 1X revenue. Overall, INLD stock is in my opinion not at all expensive and is quite cheap assuming the new management team can stabilize the business and get it growing again. The jury is still out.