NETP, A New Paradigm in E-Commerce. Go sell it off and give us an even better buying opportunity.
WitCap report June 15 1999
Net Perceptions develops, markets and supports software based on a proprietary technology (known as collaborative filtering) that compares selected characteristics of a customer's preferences, opinions and behavior to those of larger populations. We believe that the implementation of Net Perceptions's software solutions will enable online retailers to capitalize on the growth in households that shop online and will produce meaningful return on investment (ROI) through the attraction of additional customers, the generation of multiple products selected per order and an increase customer loyalty.
We believe that the most successful online retailers will be those that maximize the potential revenue opportunity from an online visitor. Given the possibility that an online shopper can click to another retailer's site within seconds, while shoppers within a brick and mortar store are somewhat captive (at least for a certain amount of time), becoming more knowledgeable of shopper needs and interests has become critical to an online retailer's success.
Forrester Research estimates that during 1998 nearly 9 million U.S. households made online purchases. This number is expected to grow to more than 40 million households by 2002, with average annual spending per U.S. household rising to $2,678 by 2002. We believe that pure online retailers as well as the vast number of "brick and mortar" retailers that have established or are planning to establish online sites, will be aggressively vying for the billions of dollars that will be spent online. In addition, brick and mortar retailers will be looking for ways to leverage the information they can garner from the Internet to drive traffic to their traditional, brick and mortar stores.
Based on Net Perceptions's unique annual per-user pricing model, we expect that the company will be able to reach operating margins in the 20-25% range over the next 5 years (excluding acquisitions), while maintaining over 40% revenue growth. Based on these expectations and our feeling that there remains meaningful upside to our estimates, we believe that the company's shares can support a price range of $30-$40 over the next 12-18 months.
In our opinion, Net Perceptions' ability to offer online retailers a proprietary, complete marketing solution and successfully implement a "per-user" pricing model will position it to secure market share in an increasingly competitive e-commerce marketplace. Accordingly, we have initiated coverage of the shares of Net Perceptions with a BUY rating.
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