On Nov. 5, Ancestry.com (ACOM) is slated to begin a new chapter in its history as it lists on the Nasdaq stock market. Before the start of trading, the stock was expected to be priced between US$12.50 and US$14.50 per share, with US$100 million in total proceeds. Morgan Stanley (MS) and Bank of America Merrill Lynch (BAC) are listed as the lead underwriters of the public offering.
Ancestry.com's public offering comes after a relative drought for IPOs, owing to the weak economy and lack of investor confidence that prevented businesses from going public. A handful of other technology companies, including software maker Solar Winds (SWI) and Internet startup OpenTable (OPEN), have gone public this year with some success. And if it performs well, Ancestry's offering could help open up the market for IPOs. "During the challenges of the last year, most investors didn't have an appetite for risk," says Lise Buyer, founder and principal of Palo Alto (Calif.)-based Class V Group, an adviser to companies going public. "Now that things have stabilized there's more of an appetite."
Sluggish growth rates
Will the family tree Web site have the staying power of other publicly traded Internet companies, like eBay (EBAY) and Amazon.com (AMZN)? Analysts applaud the subscription model of Ancestry.com, which sees more than 1 million users paying over US$150 per year for access to genealogical records they can't find elsewhere. "They've built an incredible subscription model, which is not easy to do. To get any online consumer to pay for anything is a monumental task," says Tom Taulli, an independent analyst of IPOs.
But the company's sluggish growth rates are a concern. In 2008 revenues were US$197.6 million, up 18.8 percent from 2007, when revenues were US$166.4 million. That's respectable for most companies, but a bit slower than investors may want to see in a newly public tech company. "This is a company that's growing, but not at a speed that is typical for a technology company," says David Menlow, founder of IPO Financial. "It's not really moving the needle off the scale." Also of concern is a high attrition rate: About 4 percent of users leave the site each month, which means that nearly half of its subscribers leave over the course of a year.
The company is a leader in the relatively small space of online genealogy. In September, Ancestry.com sites saw four million unique online visitors, according to the market research firm ComScore (SCOR), compared with 1.1 million for its next largest competitor, FamilyLink. The main attraction is a collection of census lists, birth and death certificates, military, marriage, and other records in which the company has invested more than US$80 million. "They're obviously the market leader in online family history research," says Eric Guja, analyst with Renaissance Capital.
Facebook is a threat
But the popularity of free social networking sites such as Facebook, which many people use to look up and interact with family members, is a growing threat to Ancestry. Facebook has more than 300 million users. And even larger Internet players may present unforeseen challenges. "If Google (GOOG) can copy every book in the world, you've got to wonder if they can do the same thing with birth certificates," says analyst Taulli.
One person that disagrees is Paul Allen, who helped found what would become Ancestry.com when his company Infobases bought the brand in 1997. After leaving the company in 2002, Allen now runs FamilyLink, a free Web community for family members. Allen calls Ancestry's IPO "fantastic" for the whole genealogy business. "Ancestry.com is about building your historic family tree," he says. "Facebook and [FamilyLink] are focused on your living relatives. I think it's a different market."