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An Internet IPO With Profit Potential?

A popular dot-com will hold its public offering this week, Cramer said Tuesday, but don’t loop this in with the empty IPOs of the late 1990s. This company is profitable.

Professional momentum investors are very excited, Cramer said, about Ancestry.com, which he described as “the Google of genealogy” and “Facebook for the over-65 crowd.” Hence the already oversubscribed deal. But retail investors should get in on it if they can, because the price is right and the stock could “pop on day one.”

Ancestry.com, which will trade under the ticker symbol ACOM, runs a subscription-based genealogy site. The company digs through billions of historical records to help subscribers name the branches on their respective family trees. While the venture may seem boring to the younger social-media set, a million people are willing to pay for the service.

And still more are signing up. Subscriptions are growing at a rate of 11%, with an average monthly fee of $16.50. Two-thirds of the subs are annual, though, and 38% of the site’s clients pay up for a premium package. Lifetime revenues per subscriber come in at $300, meaning that these people stick around for over 17 years. That explains the low 4% churn rate, which dwindles to 2% for Ancestry members who’ve stuck around for two or more years.

The company’s growth lies in its key demo, men and women over the age of 45. Rather than share photos over Facebook, this crowd wants Ancestry.com to send photos of their long, lost relatives – which the site will do when possible. Right now Ancestry controls just 0.6% of the total 119 million over-45 people in the US, but its hope is to reach 5%, or 5.95 million subscribers and $1.3 billion in annual revenues. Compare that the $181 million in revs the company saw in 2008.

Ancestry earns just 25% of its business overseas, so there’s growth potential there as well. And Cramer is also bullish about the C-level suite. CEO Tim Sullivan used to run Match.com, and CFO Howard Hochhauser held the same post at Martha Stewart Living Omnimedia. Hochhauser was also a research analyst at Bear Stearns.

Cramer’s one gripe about this deal is the involvement of private equity. Spectrum Equity owns 67% of Ancestry.com and plans to sell that stake down to 54% of shares outstanding after the offering. But this company hasn’t been loaded down with the same debt as many other PE-led deals.

Ancestry.com will price Wednesday after the close at an affordable range of $12.50 to $14.50 a share. Given the company’s growth and margins and the valuations of its peers, Cramer said the stock could be worth a conservative $18.15, making the IPO worth buying if you can get in. But do not buy this stock in the aftermarket.

“You get in the deal,” Cramer said, “or you take a pass.”

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