Stock of the Day
Feb 19, 1999
Broadcast.com: $100 Target? Deja Vu!
After DLJ upgraded Broadcast.com (Nasdaq:BCST - news) on Thursday and set a price
target of $100, shares of the Internet media company surged $10 to $68.125. Sound familiar? Recall in December when the
analyst from CIBC Oppenheimer issued a $400 price target for Amazon.com ($133.33 adjusted for a 3-for-1 split since then).
Amazon.com (Nasdaq:AMZN - news) blew through that target in a matter of days, hitting a post-split high of $199 last month,
only to collapse to $89.50 currently. Is history destined to repeat itself with BCST? And what's the story behind Broadcast.com
that has Internet analysts like DLJ's Jamie Kiggen raving?
Broadcast.com is an aggregator and broadcaster of streaming media on the net. It offers the largest, most comprehensive group
of audio and video programming, including sports, radio, television, business events, CDs, news, and audiobooks. The scope is
impressive: programming from more than 385 radio stations and networks, 40 television stations and cable networks, and game
broadcasts and other programming for more than 420 college and professional sports teams. Broadcast.com's programs attract
more than 800,000 unique users per day.
Broadcast.com is clearly the leading destination on the web for streaming audio/video broadcasts and the number one
web-based provider of business services programming. That puts it in the business of Internet advertising,
video/teleconferencing and long distance training. Over 60% of its revenues come from business services (video conferencing,
shareholder meetings, analyst conference calls) with the rest coming from advertising. One recent program, the Victoria Secret
Internet fashion show, was one of the highest profile events ever on the web.
To protect its position, Broadcast.com has numerous multiyear deals with content providers, and it has built the largest network
infrastructure for distributing streaming media programming over the Internet. Its current aggregation of audio and video content
is so large that competitive barriers are high.
Nonetheless, competition is on the way. Just yesterday, CMGI announced plans to invest $100 million (nearly twice the seed
money used to start Broadcast.com) in a new web broadcasting venture. The business will reportedly be built around an existing
CMGI subsidiary, Magnitude Network. CMGI is known as an Internet incubator, with stakes in thirty major web businesses.
Between the financial resources, experience and relationships with other Internet companies, this venture has pretty good odds
for success. CMGI also said the new company will be headed by former NBC president Neil Braun.
Broadcast.com certainly has the advantage of being the first to establish itself in the area of streaming media broadcasts, but the
new CMGI venture will eventually need to be watched as a competitive threat.
Broadcast.com did have some news besides the analyst action to boost the stock on Thursday. It unveiled a major new
programming initiative with Capitol Records, called CapitolBroadcasts, a co-branded music channel at
capitolbroadcasts.com. The site showcases audio and video programming from Capitol Records and its family of
labels.
Before you put in your market order to buy the latest and greatest in Internet stocks, look at what BCST cost: about $68 and
don't bother to look for a P/E ratio because negative earnings won't let you calculate one. The stock came public last July at a
split-adjusted $9 (that's right, it already split), so it's up 656%. But that's down from its high of $144.75. Most of this action has
been in the past two months. Somehow the word volatile comes to mind. It has about 34 million shares outstanding and a
market cap of about $2.3 billion. That's for a company with sales of $22 million for 1998, giving it a PSR (Price to Sales Ratio)
of over 100. That's off the charts by traditional valuation standards, but for Internet stocks it is hardly unusual.
The company is expected to break into profitability by the year 2000. Competition is intense on the web, and large players (not
just CMGI, but some really giant media companies) can come into a market quickly by throwing big money and resources in the
streaming video and audio area. The quality of video and audio aren't up to television quality yet and will have to be for this
multimedia effort to be immensely successful.
Still, this is the future of the net. The question is what do you want to pay for it, and is this the company you want to own. It
certainly is the current leader in the field.
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