To All:
CUC International is a fantastic company. It is one of the premier membership-based, consumer-services companies in the world. People pay a fixed membership fee annually to CUC, and in return they receive one of a variety of discount services. Through partnerships with other businesses, CUC provides its members with discounts on travel, shopping, financial, auto, dining and other services. This growing number of memberships provides a steady, recurring revenue stream that practically ensures 20% annual revenue growth.
This year, CUC acquired Sierra On-line and Davidson & Associates, leading educational and entertainment software companies. Davidson specializes in educational software, while Sierra specializes in entertainment software. Prior to its acquisition by CUC, Davidson acquired Blizzard Entertainment, the maker of the best-selling WarCraft series of games. Davidson also makes the "Blaster" line of educational titles for children (i.e., Math Blaster).
Also recently, CUC acquired Ideon Group, a leading provider of credit card protection and enhancement services.
CUC has made a number of other acquisitions with the intention of becoming the premier content provider on the Internet. It is well aware of the outstanding potential of online commerce. In fact, a recent survey found that CUC International's web site
cuc.com was the fourth most popular consumer shopping web site, behind SHAREWARE.COM, Columbia House and ZD Net Software Library. CUC has plans to consolidate all of their Internet services on one site next year (see next post for article).
With the new additions to this solid company, annual revenue growth should easily exceed 25% over the next several years. I believe earnings will grow at 30%. The stock has been trading at the high end of its valuation, perhaps indicating confidence by investors. Recently, it has fallen about 20% from its 52-week high, because it may be considered by some on Wall Street to be overpriced. This past week, the stock has sagged from apparent year-end profit-taking. This year, the stock has suffered from numerous acquisitions (affecting the net income), a secondary offering, and growing its earnings to meet its P/E.
I don't believe CUC is overpriced at all. When applying a valuation model to a company, one must consider more than earnings. Consider how important this company's business is now, and how significant it will become as Internet commerce grows. Eventually, investors will understand the new CUC. Once CUC's growth strategy bears fruit, people will notice it for what it has become.
I think the stock will reach $35 by the end of 1997.
I suggest you visit the web site cuc.com to better understand their business. I think many of you will be surprised that you may have unknowingly used their services before. They do not have good name recognition now, but they are working on improving it.
Good luck,
-Todd
(loyal CUC International shareholder and member) |
