SunTrust: 'Disappointed/Surprised' By Web.com's Revenue Miss

When Web.com WWWW reported its second quarter results on Thursday, the company may have surprised many when revenue of $144.66 million fell short of estimates of $146.90 million.

Robert Peck of SunTrust Robinson Humphrey noted on Friday he is not only surprised, but disappointed by Web.com's quarterly miss.

The analyst downgraded Web.com from Buy to Neutral with a price target lowered to $24 from a previous $34, noting the company's revenue miss creates a “reset of expectations.”

Web.com noted that its quarterly revenue was hurt be a decline in net customer additions, as the company added only 38,5000 new clients compared to the 50,600 it added in the previous quarter. Average revenue per user rose $0.14 from the previous quarter and $0.80 year over year to $14.89, falling short of Peck's estimates of $15.15.

According to Peck, $1 million of the revenue miss could be attributed to below plan sales hires and sales productivity in its outbound sales channels, which typically drive the high value-add and price point solutions. Another $1 million of the shortfall could be attributed to “mis-executions” surrounding the company's efforts to integrate SnapNames which have since been resolved.

Peck noted that Web.com is shuttering its National Accounts business, which will reduce quarterly revenues by approximately $5 million per quarter going forward. The analyst believes the move will be a positive, as it is a low margin and “lumpy business” but nevertheless it does present a “growth headwind” through the first half of 2015.

There were some positives in Web.com's quarterly report, according to the analyst, who noted that free cash flow was solid at $21.8 million despite an elevated capital expenditure. Additionally, the acquisition of Scoot (a U.K. based local online directory) demonstrates the company's ambitions to expand outside of the U.S.

Bottom line, Web.com's management lowered its full-year revenue and EPS guidance by three percent and one percent, respectively. The company is also pulling back on head count growth, discretionary brand marketing spend and management compensation in an effort to sustain margin levels.

Peck noted that it may take time for Web.com to regain its execution footing and further downside guidance by management is possible. Nevertheless, Peck has confidence in the company's management team and a negative rating at this point is not justified.