Interland (INLD) Valuation

I finally got a chance to crunch some numbers on Interland (INLD), and its main public competitor, Website Pros (WSPI). The bottom line: INLD's stock still has good upside potential, assuming of course WSPI keeps climbing.

First off all, it is important to note that WSPI and INLD have slightly different business models, but overall both companies offer small and medium-sized business hosting and website services, and so it is quite reasonable to compare their respective valuation metrics. The chart below illustrates the valuation comparison.

                                                                 

	WSPI	INLD
Shares Outstanding (Fully Dil.)	16	18.5
Price	11.78	5.85
Revenue	44	48
Net Cash	56	21
EV (Enterprise Value)	132.48	87.225
EV/Revenue	3.01	1.82
Customers	51,000	137,000
EV/Customers	$ 2,597.65	$ 636.68
Revenue/Subscriber	$ 862.75	$ 350.36
Churn	5.90%	2.00%

As can been seen, WSPI is trading at nearly double the valuation of INLD (3X EV vs. 1.8 for INLD), despite having a customer base of half the size and a churn rate double that of INLD's. To WSPI's credit, it's growing much faster than INLD (INLD in fact has not grown in years) and WSPI is profitable (INLD is still losing money).

Taking all things into consideration, it seems somewhat logical that WSPI should command a higher valuation than INLD, given its profitability and growth (though one can argue that WSPI's growth is misleading since it's off a smaller base).

However, in comparing the two companies, you can clearly see where the upside is for Interland (INLD) (i.e. they need to start generating more revenues from existing subscribers by upselling more web services), and why this type of valuation discrepancy between the two competitors cannot last in the market. Either WSPI will come down in price, or INLD will go up in price. My gamble still remains that when Interland (INLD) renames itself Web.com, the company will begin a nice growth spurt and Wall Street will begin to assign the stock a higher valuation, in line with WSPI. If that happens, INLD's stock could trade up to $9 per share relatively quickly. That's an over 50% jump from the current price.