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WebMD's Misleading Results

By W.D. Crotty
March 9, 2005

The quarterly numbers would suggest that WebMD (Nasdaq: HLTH) is sending out healthy signals. But is it? Should we call a doctor?

For the fourth quarter of 2004, the company reported a 19% increase in revenue and an 87% jump in net income over 2003's fourth quarter. Going forward, the company upped its 2005 guidance for first-quarter revenue by $7 million and said earnings per share will be one penny higher -- $0.02-$0.03.

Although the numbers do look good, a careful examination provides a somewhat different diagnosis. Total sales for the fourth quarter increased $49.2 million, but $33.9 million of that increase (69%) came from customers acquired in recent acquisitions. As in previous quarters, acquisitions -- not organic growth -- provided the double-digit percentage growth at the top line...
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