Morning Report
Mon Oct 05
eMailbag:
OnSale, ebay, Broadvision, Web Ads
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
Any investor who wants to peer into the Internet as an opportunity should understand the moving and shaking at Fall Internet World. No one place, one time,
one moment gathers the best and brightest of the Internet like Mecklermedia's (NASDAQ:MECK - news) trade show and conference, the world's largest,
which opens today in New York City's Javits Center and runs through Friday. While the Internet industry deals with Websites, email, groupware, virtual
communications, commerce, software, hardware of every facet, Fall Internet World brings the people who make it all happen together to get a glimpse of the
future.
More than 50,000 people will see, gaze, gawk, hawk their wares in every area the Internet represents. It is the pulse of the industry manifest. Yours truly will be
on hand there all week and will bring some of the best of the show to you in Internet Stock Report, the hot companies debuting, the hot stocks, the products that
may rock Wall Street and venture capital way.
And now, emailbag Monday. First reader up this week writes:
"Steve, I have enjoyed your insightful perspective on the evolving Internet stock industry. Very insightful; Kudos! Question: What is your prognosis for the local
advertising industry with regards to the Digital Cities, Sidewalks, and City Search. What percentage of the traditional mediums will shift their local advertising
dollars to the local online site. Any thoughts on their sales forces, i.e. size, revenue carried per rep, that will be involved carrying off this shift in advertising dollars
would be useful. Again, terrific commentary and assessments, and I look forward to your insight."
Reply: Local newspaper ad revenue in the U.S. (and globally) makes up the lion's share of a more than $40 billion newspaper ad revenue stream. The total ad
revenue by all mediums surpasses $100 billion. In the past I've been conservative about the percentage that may migrate to the Web, about 3% or 4% of all ad
expenditures. Or $3 billion to $4 billion ad sales annually on the Web.
However, I believe that a hybrid ad approach is emerging: TV-Web; newspaper-Web; radio-Web, etc. so that any given ad in any medium (movies, too) will
include a Web reference or Web component. Determining what part of future ad buys are "Web" vs. the rest in that scenario may prove difficult since the ad will
be both.
And traditional media firms partner with Web firms to offer both so that a company like CitySearch teams up with the Sydney Morning Herald to offer
Web-based info. Partnerships will increase in that space since the local newspaper or TV franchise also has the systems in place to gather, sift and sort
information but needs a Web-savvy partner to produce the online outlet.
The person selling the ad package in the future will sell print and Web or TV and Web as part of the agreement. Holding that back are sales forces unfamiliar
with the Web, its metrics, its customs, etc.
You're also seeing ad networks replace the traditional ad sales team. A firm like Doubleclick (NASDAQ:DCLK - news) can turn on the ad spigot anytime you
want, or 24/7 (NASDAQ:TFSM - news) can do similar. Software, the Internet, and instant distribution produce instant ad flow. The future? perhaps the future
of all ads for all mediums, software indexing ad placement requests and delivering them to ad outlets via the Internet based on profiling, space, availability,
pricing, demographic, customer, cost, reach and more. Hooks, not nets.
Onsale Automatic
"A comment on you OnSale comment. It was indeed tiring to keep tabs on bids at OnSale. But, they have a new "autobid" feature, which allows you to have a
ceiling on your bids. The computer then keeps you automatically updated at the lowest possible bid (upping by the minimum increment) as new bids come in. If
bids exceed your preset maximum, then your bid evaporates. This has worked well for me, as I know what I'm willing to pay. Incidentally, the maximum can be
updated if you choose."
Reply: We've always been a big fan of Onsale's (NASDAQ:ONSL - news) commerce model, one we think superior to Amazon's (NASDAQ:AMZN - news)
in many ways. The autobid is a big improvement for people with better things to do than monitor their bids all day long. Like Amazon has expanded, we expect
Onsale to start thinking more as a meta site for all things on sale.
ebay
"Read your article today on your 1998 Stock picks... As far as eBay's longevity, my suspicion is that it will work until they screw it up...as far as the cost, it's free
(your operative word) to buyers, and sellers keep with it because of results...I've done about a dozen deals there (half as a seller), mostly on items from
$100-$600, and I've not had a bad deal yet...everything I've wanted to move has sold. I'll often list an item there BEFORE trying it on a free service, just
because the results are usually so favorable.... Don't factor out the "cult factor" of eBay."
Reply: ebay's (NASDAQ:EBAY - news) done a great job of pioneering the Web-based personal auction. It appears to have critical mass in users and items. It
will be tough for rivals, even Yahoo-Onsale (which just teamed up for personal auctions), to dislodge ebay's forefront status in its niche. Whether or not ebay is a
$1 billion company remains the debate. We think ebay could move more than $500 million in merchandise this year and more than $1.5 billion next year.
If ebay's share of the gross keeps in line with current percentages that could translate into $40 million to $100 million in net revenues. In that scenario we're
willing to believe in a 10x multiple or $1 billion market cap for EBAY. If it cannot hold onto the percentages in a freebie war then anything can happen, multiples
may tumble.
Envisioning The Fall
"Love your daily articles. Very informative and useful to me! :) I trade exclusively with Internet stocks and have made a tidy profit for myself. But it was very
disappointing to see what has happened to Broadvision. How can one of the most stable Internet stocks on your index and one of the very few to make a profit
drop from 19 to under 11 in just a few days??? I bought at 17 and thought that was a bargain!
It dumbfounded me, especially since there was absolutely no negative press releases concerning the company. Even Pehong Chen said in a statement after the
drop off, "There have been no material changes in the company's products, plans or business prospects." Can you shed some light on this matter???"
Reply: Internet Stock Report September 22 discussed Open Market (NASDAQ:OMKT - news) vs. Broadvision (NASDAQ:BVSN - news) . We highlighted
estimated trading multiples for both which showed BVSN at 10x estimated revenue and OMKT at 5x. We think a gap may have been present one way or
another.
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