Infospace (INSP) is an interseting stock: Here is a profitable company trading at a Enterprise value/EBIDTA of 1.5, a price to sales ratio of 1, with $223 million of cash in the bank.

In fact, with Infospace trading at about $7, that's only $1 above its cash position, which is $6 per share. This stock is trading like a company that is about to lose a ton of money. The interesting thing is that the operating cash flow over the last 12 months is +$34M, which means it's actually putting money in the bank. What gives? Skeptics could argue that this company, which restructured several years ago, has lost its technology edge and is only a bit player in the Internet search market. But the upside is that you are buying the company only $1 above the value of its cash so essentially you are getting a call option on its growth for $1.

I believe this is a decent bet going into year-end, where Internet advertising and services sector is bouncing back, and Infospace traditionally has its strongest quarters in the last quarter of the year. I have initiated a position around $7 and might buy more if it dips below $7. My stop is at $6, its cash position. The price target is $10 for a risk/reward ratio of 1/3 on the trade.

(Disclosure: Long INSP)

There is a lot of buzz, hype, critical analysis, and downright drivel out there about trends in marketing and ad spending. Some have even asked whether advertising is dead. They're wrong.

Advertising is not dead folks, it has become more vibrant and complex than ever. It's growing in the online world where aggressive metrics and analysis demand instant accountability.

Here's an experiment: Try to go the next five minutes without seeing some kind of add. Ooops, too late, already happened, right?

In the Q4 of 2009, online advertising hit a new all-time quarterly high of $6.3 billion. What's changing about advertising is that its morphing, and the metrics and data used to track it are becoming more sophisticated than ever.

Take the famous "Cog" ad by Honda. Reportedly took $6M and more than three months to develop this high-concept, cross platform viral video ad. It got lots of media attention too:

Tired of touchy-feely blogs from arrogant Internet companies? Might want to take a look at the recent post from the Internet sharing company Reddit, in which company officials admit they are totally pathetic.

"We've been kinda bummed at reddit these days. It seems like every week something comes up that slows performance to a crawl or even leads to a total site outage. And we almost never get a chance to release new features anymore."

Huh? You mean, you have trouble running your business and I'm supposed to care? You're a business. You're supposed to figure out how to make money. It's not like you are some starving orphan in Somalia, right?

But wait... there's more:

"The good news is, our traffic continues to grow by leaps and bounds. In July 2008, we served up 51 million pageviews and it took four engineers to support it. Since then, we've added user-created reddits, self posts, sponsored links, self-serve sponsored links, awards, a mobile interface, RSS feeds, moderation tools, layers of anti-spam and anti-cheating code, we've gone open source, and our traffic has grown to about 280 million pageviews per month. But after all that, we still only have four engineers. We're reaching the limits of sustainability."

Um. Okay. So here you admit to "getting traffic," which on the Internet is akin to "seeing cars drive by on the freeway," but you have no idea how to make money from that and run a business. Sympathy level rising rapidly!

Then they go on to metion some experimental (stupiod) ideas, and then they ask readers they're advice:

"As long as we're going to be taking suggestions and money from you guys, we might as well also take the name you came up with: this new program will be called "reddit gold".

How much would you pay for this wonderful opportunity? $10? $30? $∞?

No, seriously, how much would you pay? We have no idea what we should be charging. So for now, we're just going to let you pay whatever you want. You can even just send us a postcard. Visit http://www.reddit.com/help/gold for details"

I'm hoping this blog is some kind of hoax or joke. I really didn't know much about your company, but now that I have read this I have concluded you are the most pathetic, sad company on earth. Good luck to you.

Seriously. Arthur Sulzberger Jr.: What is wrong with him? After at least a decade of mismanagement of his family's New York Times empire, which has fought with shareholders and investors and has come very close to plunging it into bankruptcy (who knows if the coast is clear?), the Chairman and Publisher of the New York Times has  finally made a "decision" about an Internet pay model -- without having made any actual decisions. I'll tell you what's wrong: He can't even make basic business decisions. The New York Times is going to start charging for access to articles, the newspaper says. When will they charge? Maybe "early 2011." How much? Not sure. It will be a flat fee for unlimited access, though. When do you have to pay? Not really sure about that, either. You'll get something for free, but they're not sure yet. You can read some articles, but we're not sure now many. This is not how business decisions are supposed to be made. I'll tell you what the problem is: If the New York Times actually goes through with this (who knows, Arthur may change his mind yet again), they have a tough year ahead of them. They may not even make it to the famous pay gate in 2011. Now that they have announced they will go to a pay model, they will start cannibalizing their Internet traffic. They need to figure out how much ad revenue they will lose to the decline in Internet traffic and how much revenue they can possibly get from pay revenue. Then all the sales people selling Web ads have to go back to their big advertisers and explain how this is all going to work out for them. If you are a salesperson, this is unfun. With mounds of debt, an unsteady cash flow, and the newspaper market in decline in the middle of a harsh recession, it's not exactly the time to be making wishy-washy decisions. What's the New York Times stock doing (NYT)? it's down 1%. This man has made shareholders miserable for far too long. I'm shocked that he's able to hang on. The only reason is the company's whacky preferred shareholder structure. Arthur, can you just make a decision? If you can make a boneheaded decision to build some gigantic, unaffordable, ego-boosting skycraper in New York City -- which you later have to sell in order to raise some cash -- you should be able to make a basic business decision about your core product in its most important growth market. Arthur: take a look at your balance sheet. You have nearly $1B in debt and almost no cash. You have negative shareholder equity, yet somehow you manage to have disdain for shareholders. You are not in a position of strength, nor do you act like you are. New York Times Co. (NYT)

Balance Sheet
Total Cash (mrq):	28.09M
Total Cash Per Share (mrq):	0.194
Total Debt (mrq):	916.53M
Total Debt/Equity (mrq):	N/A
Current Ratio (mrq):	0.793
Book Value Per Share (mrq):	3.385

Stockholders' Equity                                                    2008                                                             2007                                                                2006
Misc Stocks Options Warrants		-	-	-
Redeemable Preferred Stock		-	-	-
Preferred Stock		-	-	-
Common Stock		14,889	14,889	14,886
Retained Earnings		998,699	1,170,288	1,111,006
Treasury Stock		(159,679)	(161,395)	(158,886)
Capital Surplus		22,149	9,869	-
Other Stockholder Equity		(372,095)	(55,451)	(147,164)
Total Stockholder Equity		503,963	978,200	819,842
Net Tangible Assets		($208,645)	$166,299	$35,474

Source: Yahoo

It's Google-China Wednesday here at the Rayno Report! So exciting. Perhaps the biggest market action today comes in the stocks of Baidu Inc. (BIDU) and Sohu.com (SOHU), the leading Chinese Internet companies, which are taking off on Google's threat to "do less evil" and pull out of China because of censorship and possibly hacking by the Chinese government. Baidu was up $42, or 11%, in early morning trading, and Sohu.com was up .85, or 1.5%, in early trading. Google was down $12, or 2%. Google is operating in China with special permission as long as it continues to censor search results, as instructed by the Chinese government. With Google's threat to pull out, the Chinese Internet companies have the opportunity to split the bulk of the Chinese market share, not giving anything to Google. The conflict doesn't merely threaten Google's business in China, though. It's also likely to become a high-level diplomatic issue between the United States and China. Google is saying that there was an sophisticated, complex hack attempted on its servers and specifically the accounts of gmail accounts of human-rights activists. The obvious speculation is whether the Chinese government may be involved. Incidentally, other companies have weighed in, saying they were also the victims of attempted hacks. Reuters has a nice chart here on "Google's rocky road into China."

Surely 2009 wasn't the best of years for the venture-capital industry, with Wall Street trying to sort out credit turmoil, startups struggling, and the capital simply out of whack with bloated amounts of funds looking for a place to go. But there were some victories -- some IPOs even, and 2010 is looking a lot better! Redpoint Ventures partner Scott Raney points out that the IPO market is creeping back and that M&A activity is picking up substantially. That means more exits for startup companies, which will be good for pumping new blood back into the venture capital market in 2010. Raney also says that deal flow is increasing, M&A talks are increasing, and investors feel better about things. Will it hold up? Just follow the bouncing ball of the stock market, which leads the psychology here. "The mojo is back, pricing is back, and things are full-steam ahead. It's a little surprising, actually," said Raney in an interview yesterday. "We're bullish about a lot of things especially cloud computing and on-demand software." How about some more buzzwords? Here are some other areas Raney likes: "Internet Infrastructure, virtual goods, open mobile." Some of the Redpoint investments that Raney says are doing really well right now: HomeAway.com (online vacation rentals), Solyndra (thin-film solar), and BlueKai (online marketing). I will be using some of Raney's input, as well as input from lots more people, in some research I'm doing over the next few weeks. If you'd like to talk to me on the topic of venture capital, startups, and innovation, send me an email at scott@rayno.com.