The Red Herring article:
March 2000 Stocks to Watch Next stop Nasdaq.
It is somewhat unnerving, if not totally irrational, to consider buying a stock with no revenue. Zero. But in the case of Net Value Holdings, a CMGI-like Internet incubator, that's exactly what potential investors have to swallow. Why? Because the San Francisco-based firm sits at the center of the Internet's hottest niche as one of only a handful of publicly traded companies that invest in pre-IPO Internet startups. As an over-the-counter stock, Net Value has gone mostly unnoticed, a fact that may soon change; the company has filed an S-1 with the Securities and Exchange Commission for listing on the Nasdaq as early as March and has just completed two private placements raising a total of $5.2 million.
For investors comfortable with risk, getting in at the current price of $10.13 a share could be a ground-floor opportunity. The company's management is strongly pedigreed: Paul Stephens, legendary founder and head of the investment bank Robertson Stephens recently took a place on its advisory board. More importantly, Net Value has a potentially winning IPO on its hands - it owns 17 percent of AsiaCD, an online music store targeting the Asian community. If AsiaCD garners a public-market valuation of even $500 million to $1 billion (China.com is currently worth $4
billion), it would mean that Net Value's stake alone in the portfolio company would be more than the incubator's current market value of $150 million, giving Net Value's stock every chance to double. With seven companies currently in its portfolio and a goal of housing up to 20 by the end of 2000, Net Value's shares could jump even higher, making it a triple-bagger or more. "It's $150 million's worth of nothing right now," says David Lile, a stockbroker with Vancouver-based Haywood Securities who has recommended the stock to institutional clients. "But if they get even one company to market, then wahoo!"
The risk for investors is that there's no guarantee that any of its companies will ever make it to the IPO stage or even be sold to a competitor for similar returns. Nor are there guarantees that Net Value will be able to differentiate itself from the crowd of incubators popping up everywhere. Carlo Cannell, CEO of Cannell Capital Management, the San Francisco-based investment firm that handled Net Value's private placement, is willing to take that risk: "Without sponsorship, these types of over-the-counter stocks are dead, but with Wall Street sponsorship, they're up 1,000 percent or more." Net Value could also benefit from the trend toward consolidation within the incubator space by selling a chunk of the company to a CMGI, ICG, or Idealab, or by acquiring similar firms itself. As Mr. Lile says, "I'm really looking at it as a company that has not just one
shot, but many shots." Many shots, but no revenues. |
