THE RAGING BULL'S CYBERSTOCK INVESTOR REPORT
"Your Weekly Internet Stock Newsletter"
April 16, 1999
"Now Read By Over 80,000 CyberInvestors Weekly"
Editor: Matthew W. Ragas
ragingbull.com
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***RAGAS SPEAKS FOR THE WEEK***
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Beyond.com and Digital River - Future Software Titans or Digital Roadkill?
Sometimes it's best to keep your mouth shut and let your actions do the
talking. At least that's my advice this week for Beyond.com Corp. (BYND)
President and Chief Executive Mark Breier, especially when his company is
quickly building marketing alliances and distribution partnerships which
could eventually leave his top competitor in the dust.
Last Tuesday, Digital River Inc. (DRIV), a competing software retailer,
filed suit against Beyond.com in a Minnesota court, alleging Beyond.com
officers made false and defamatory statements about Digital River. The
alleged defamation began on a recent road show to gather support for a $140
million secondary stock offering which Beyond.com completed this week.
Digital River claims the Beyond.com officers repeatedly hinted during the
roadshow that a small number of clients accounted for a large portion of
Digital River's revenue last year.
Is it true? Well, both companies are still building their client base at
this point. Digital River's recent 10-K filing admits that three software
publishers DID account for 25% of the company's 1998 sales. However, by
the same token, Beyond.com's 10-K reveals that departments of various U.S.
government agencies accounted for 28% of its sales last year.
So stopping throwing stones, guys! Both of you are in the same boat.
The reason these two companies are going at each other like cats and dogs
is simple. Beyond.com and Digital River are both the leaders in the
emerging electronic software delivery (ESD) marketplace. Both are trying
desperately to win the favor of Internet analysts and fund managers in the
hope that their company will be crowned the budding Amazon.com of
ESD-delivered software.
After observing this name-calling match for the past two weeks, I decided
it was time to actually break down the two companies and see which is
destined to become the chump and which the champ in ESD.
Behind The Numbers
After acquiring software retailer BuyDirect.com in February for $123
million, Beyond.com claims it has more than one million customers. By
comparison, Digital River's current 10-K filing reveals that company
completed transactions for more than 490,000 unique end users as of March
5. This morning Digital River announced they will acquire two e-commerce
shareware providers for $14.2 million in cash and stock. While the deal
will add 2,500 new shareware clients to Digital River's customer base, it
is unclear how many additional unique end-users it will add.
Not surprisingly, both companies are still bleeding red in losses but
seeing impressive top line growth. Beyond.com posted sales last year of
$36.7 million, a 118% gain from the prior year. The younger Digital River,
on the other hand, racked up 1998 sales of $20 million, a whopping 736%
one-year sales increase. With a roughly $1 billion market cap on April 14,
Beyond.com was trading just over 21 times trailing 12-month sales. With a
market cap of $786 million, Digital River was trading at a pricier 27.5
times trailing 12-month sales. Analysts don't expect either company to
break even until fiscal 2001 or 2002.
Beyond.com offers more than 48,000 software titles, with 5,600 ready for
immediate electronic download. Beyond.com also maintains an affiliate
program with more than 20,000 Web sites. By comparison, Digital River
offers a library of more than 100,000 "digital products", including 30,000
software applications.
Enough Already!
All the bickering over who is biggest and who has the most partners is
childish at this point, especially since overall software sales through the
Internet are only expected to blossom to $2.4 billion by 2002, according to
Jupiter Communications. Beyond.com and Digital River are like two
teenagers bragging about whose hot rod has the most horsepower. If the
drivers don't know what they're doing and haven't performed the proper
maintenance, it doesn't matter how much they've got under the hood.
So here are the most important differentiating factors between these two
aspiring software hot rods.
1) Online Retail Distribution And Marketing Partners.
Digital River appears the weaker of the two companies in this area. Online
software sites that use Digital River's ESD technology include Kmart,
Wal-Mart, CompUSA, Cyberian Outpost, Corel, Adaptec and Shopping.com.
While Wal-Mart Stores Inc. (WMT), K Mart Corp. (KM) and CompUSA Inc. (CPU)
are kings of the offline retail world, they are still mere pups online. As
Raging Bull founder Bill Martin recently reminded me, "WalMart.com" is
still an invalid Web address. "Wal-Mart.com", including the hyphen, must
be typed to visit the retailer's online bazaar.
Beyond.com has struck a variety of ESD deals with both online retailers and
software publishers, including Symantec Corp. (SYMC), creator of the
popular Norton AntiVirus products, and Compaq Computer Corp. (CPQ) to
create a co-branded software store at the Compaq.com site. Other ESD
partners include Microsoft Corp. (MSFT), Network Associates Inc. (NETA),
AutoDesk Inc. (ADSK) and Netscape's NetCenter. The company also has a
wide-ranging group of marketing partnerships which include Yahoo! Inc.
(YHOO), America Online Inc. (AOL), Excite Inc. (XCIT), Ziff-Davis Inc.'s
(ZD) ZD Net, Microsoft's MSN, CNET Inc. (CNET), XOOM.com Inc. (XMCM) and At
Home Corp. (ATHM). Beyond.com management believes the partnerships can
reach more than 75% of the available Web audience. Distribution is key
online and Beyond.com seems to have the area locked up.
2) Broadband Strategies
The rollout of cable modems, DSL and other high-speed Internet technologies
over the next few years will present a sizable growth opportunity for both
ESD players but right now ESD is still a hassle for most consumers.
Downloading a new copy of Norton's AntiVirus still takes about one hour via
a 28.8 modem. As you can see, it's not exactly a picnic for dial-up
Internet users.
Beyond.com appears to get the nod over Digital River in this category as
well, primarily because Beyond.com now enjoys a valuable marketing and
distribution partnership with high-speed cable Internet provider At Home.
In addition, Beyond.com has a large marketing deal with AOL, which is also
a minority investor. Beyond.com should directly benefit from AOL's recent
DSL partnerships with various Baby Bells as the services are rolled out
over the next year. Greater bandwidth should mean faster downloads and
increased sales for both firms, particularly Beyond.com.
The icing on the cake for Beyond.com is that Microsoft co-founder Paul
Allen is an original investor in Beyond.com and his venture firm still
holds a seat on the board. Allen continues to scoop up cable companies and
related broadband service companies, so a wide-ranging partnership between
Allen's cable companies and Beyond.com would appear to be a possibility.
Of course, there is still time for Digital River to position itself in the
emerging broadband marketplace by striking partnerships with various cable
companies, ISPs, pc makers and telecoms. As more consumers get access to
high-speed pipes, ESD is a logical killer ap for the cable companies and
telecoms to offer their customers. Digital River must awaken and
capitalize on the opportunity.
3) Building A Brand
Digital River has oddly decided to focus on being the picks and shovel
player in ESD, an entirely wrong game plan for the market. The company
appears content to remain the behind-the-scenes player which provides the
digital software delivery technology for various software retailers and
publishers. The problem with such a strategy is that Digital River stays
invisible to the end consumer who could care less which company provides
the technology to download a piece of software. All the consumer remembers
is the name of the software publishing or retail site where the software
was purchased. Digital River? Who's that?
While Beyond.com is still not a household name, the company has made an
effort via traditional advertising and online partnerships to build a brand
name among consumers. While Beyond.com offers back end ESD services for a
variety of publishers and sites, the company also offers all of its
software library directly for sale to consumers via its website. In
comparison, Digital River's site serves as nothing more than an
informational site for prospective customers. Thus, Beyond.com has been
more aggressive in building their brand name. Beyond.com's CEO is a former
marketing vice president for Amazon.com Inc. (AMZN) so this brand building
strategy doesn't surprise me in the least. Actually it makes the most
sense.
Think about this for a second. A certain degree of Intel Corp.'s (INTC)
success has come from aggressively marketing their Pentium chips for a
number of years and building up an incredibly strong brand among consumers
for what is actually an unsexy product. Most consumers never actually see
the Pentium chip but expect to find the "Intel Inside" logo on the box of
their pc. Beyond.com is attempting to head down that same path. After
all, won't it be much easier for a current Digital River client like Kmart
to switch over to a competitor like Beyond.com if Kmart's customers never
realize that anything has changed in the first place? Absolutely. Just
ask Intel competitors Cyrix and Advanced Micro Devices Inc. (AMD) about how
that goes.
Risk Factors Abound
There are a variety of competitive threats that both firms must overcome in
the next 12 months. Beyond.com and Digital River are directly and
indirectly competing in a brutal field which includes larger names like
Barnes & Noble Inc.'s (BKS) barnesandnoble.com, Cyberian Outpost Inc.
(COOL), Egghead.com (EGGS) and Insight.com which are all looking for a
slice of the software sales pie.
In addition, both companies will increasingly find their margins coming
under pressure from zero-margin e-tailers like Buy.com and Onsale Inc.
(ONSL) who offer cut-throat "below-cost" pricing on thousands of products.
Then there is the strong possibility that e-tailing goliath Amazon.com will
step into the online software arena later this year. If that happens,
pesky litigation and name-calling will be the least of the problems for
Beyond.com and Digital River.
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***WEEKLY PUBLIC INTERNET MARKET NEWS***
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Excite Unveils Partnership to Expand into Spain
APRIL 15 - Excite and Retevision announced a new Internet company in Spain,
ExciteRetevision Espana. The value of the newly formed joint venture is
estimated at $20 million. Ownership of the joint venture will be shared
equally between Excite and Retevision. The 50/50 joint venture agreement
will combine Excite's award-winning technology and content with
Retevision's leadership position as the foremost Spanish ISP with 120,000
customers.
eBay and Butterfield & Butterfield in Auction Partnership
APRIL 15 - Online auctioneer eBay (EBAY) and traditional auction house
Butterfield & Butterfield, announced a strategic initiative to introduce a
new trading category on the eBay Web site that will feature premier
auctions of antiques, fine art and collectibles from around the world.
Butterfield & Butterfield will bring to the new category an international
network of auction houses and fine art and collectible consortia in the
second quarter of 1999.
drkoop.com Signs $57M Deal with GO Network
APRIL 15 - Infoseek Corp. (SEEK), a joint partner with Disney in the GO
Network, announced an exclusive, three-year agreement with drkoop.com, a
consumer health network. The agreement will provide a potential revenue
opportunity of more than $57 million and is contingent on certain financing
efforts by drkoop.com. drkoop.com will enjoy distribution on Go.com,
ABCNEWS.com, ESPN.com, and Family.com among other Infoseek properties
because of this partnership.
Microsoft Partners with Excite for Audio/Video Clips
APRIL 14 - Online portal Excite announced the signing of an agreement with
Microsoft Corp. that will allow users to add music and video clips to their
Excite Communities pages and integrate a customized version of the
Microsoft Windows Media Player. Microsoft's new Windows Media Player has
created a digital rights management solution for protecting content
accessed over the Internet.
Priceline.com and First USA Sign Marketing Pact
APRIL 13 - E-commerce auction company Priceline.com (PCLN) and credit card
issuer First USA announced a definitive, five-year, performance-based
marketing agreement. This alliance could generate revenues of up to $200
million over five years for priceline.com. First USA will enable customers
to increase the amount of their priceline.com purchase offers by specified
amounts by applying for a First USA credit card or using a First USA credit
card to complete their online transaction.
AboveNet Partners with DoubleClick for Co-Location Services
APRIL 12 - AboveNet Communications (ABOV), a Web co-locations company,
announced a partnership with advertising network DoubleClick (DCLK) to
co-locate its Web servers. DoubeClick's web servers will be co-located at
AboveNet's Tysons Corner, Virginia and San Jose, California Internet
Service Exchanges.
Amazon.com Acquires LiveBid.com
APRIL 12 - Online retailer Amazon.com has agreed to purchase LiveBid.com a
provider of live-event auctions on the Internet. Utilizing LiveBid.com's
patent-pending real-time software technology, auction houses are able to
broadcast their auctions over the Internet. Online bidders can participate
in live auctions in real time, competing directly with bidders present at
the auction site. Terms of the acquisition were not displayed.
RealNetworks Acquires Xing, Strikes Deal with IBM
APRIL 12 - Streaming media company RealNetworks (RNWK) and IBM announced an
agreement to develop an application that enables consumers to receive and
process music and related data from the Internet using IBM security
features. IBM and RealNetworks will integrate RealNetworks client
technology and encoding tools into IBM's Electronic Music Management
System. Seperately, RealNetworks also announced that they have acquired
Xing Technology Corp., an MP3 software developer for $75 million in stock.
The Xing encoder is several times faster than other MP3 encoders.
CBS Takes Stake in Big Entertainment and storeRunner
APRIL 12 - CBS Corp. (CBS) announced that it has signed letters of intent
to invest in hollywood.com and storeRunner.com. CBS will receive a 35%
ownership position in a new joint venture company, which will own
hollywood.com in exchange for a $100 million of promotion from various CBS
properties. CBS will also receive warrants to increase ownership by 5%, for
additional promotion or cash. Separately, CBS will also receive 50% of the
equity of storeRunner, which operates storeRunner.com, in exchange for
approximately $100 million of promotion and branding support on all CBS
media over a six-year time period.
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***WEEKLY PRIVATE INTERNET MARKET NEWS***
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800.com Secures $16M in Financing
APRIL 16 - 800.COM Inc., an online retailer of consumer electronics and
home entertainment products, announced that it has secured $16 million in
private funding. Investors in this company's second round include Trinity
Ventures, Asia Pacific Ventures, Vulcan Ventures, and Stanford University.
Olympic Venture Partners and CB LLC, first-round investors, also
participated in this second round.
Salon.com Raises $15M in Capital
APRIL 15 - Online literary magazine and community site Salon.com announced
that it has closed a $15 million round of private financing from a
combination of strategic media and financial investors. In addition to
Salon's existing investors, Adobe Ventures, Hambrecht & Quist and ASCII
Ventures, new investors include Act III Communications, Constellation
Ventures/Bear Stearns, the McKay Investment Group, MDT Advisors, Rosewood
Stone Group and Wasserstein Perella.
QVC Takes Stake in The Knot
APRIL 15 - Online wedding site and gift registry The Knot announced a $15
million strategic investment from e-commerce leader, QVC Inc. The
investment in The Knot is QVC's first in an online vertical market entity.
The Knot draws 900,000 unique visitors and 17 million page views each
month, and 1000 new members each day.
internet.com Establishes $5M Venture Fund
APRIL 14 - internet.com LLC has announced the formation of the internet.com
Venture Fund I LLC devoted to early stage investments in content Web sites.
The Fund closed on April 12, 1999. Internet.com, which filed this week for
an IPO, offers a variety of niche websites, newsletters and online
discussion forums for the Internet industry. Earlier this week,
internet.com acquired pioneering New York Internet industry news site @NY
and SiliconAlleyJobs.com.
Homestead Completes $17.5M Venture Round
APRIL 13 - Web publishing company Homestead Technologies announced it has
completed a $17.5 million round of financing from a group of investors that
include IVP, Global Retail Partners and Draper Fisher Jurvetson. Homestead
is a Web-based publishing platform that enables individuals and groups to
create feature-rich Web sites. Current partners include Rolling Stone
Network, HotBot, Deja News, AccuWeather and VantageNet.
Bamboo.com Receives Backing from Intel and Others
APRIL 12 - Bamboo.com, a provider of content services to the online real
estate community, announced the completion of a $12.5 million round of
venture capital financing. The investment was provided by Intel, Trident
Capital and The Walden Group. Bamboo.com is a producer of 360-degree
virtual tours on the Internet for real estate. Bamboo.com distributes its
content to real estate destinations that include REALTOR.COM, Microsoft
HomeAdvisor, HomeSeekers.com, LoopNet and GTE.
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***WEEKLY INTERNET IPO FILINGS***
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Company: Software.com, Inc.
Filing Date: April 14
Exchange: Nasdaq
Proposed Ticker: SWCM
Offering Amount (mil.): $69.0 mil.
Underwriters: Credit Suisse First Boston; Merrill Lynch & Co.; BancBoston
Robertson Stephens
Summary: The company provides Web based email, voice mail, fax services and
other business messaging services to a variety of clients. Clients include
AT&T, @Home, Excite, PSINet and Ameritech. Software.com had 1998 sales of
$25.6 mil. and a loss of $7.4 mil.
Company: DVD EXPRESS, Inc.
Filing Date: April 12
Exchange: Nasdaq
Proposed Ticker: DVDS
Offering Amount (mil.): $57.5 mil.
Underwriters: ING Baring Furman Selz LLC; Friedman Billings Ramsey
Summary: Online store that offers a selection of almost every music and
video title currently available in the DVD format. Also sells DVD
accessories and software. AOL has a small minority stake in the firm. The
company racked up sales last year of $16.9 mil. and a loss of $4.5 mil.
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***QUARTERLY EARNINGS RESULTS***
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Inktomi(NASDAQ: INKT) Actual Reported: ($0.09)
Date: April 15
Consensus Estimate: ($0.10)
Analysts, Moderate Buy: 4
Analysts, Hold: 2
ONSALE (NASDAQ: ONSL) Actual Reported: ($0.28)
Date: April 15
Consensus Estimate: ($0.27)
Analysts, Moderate Buy: 7
Analysts, Hold: 2
Excite(NASDAQ: XCIT) Actual Reported: $0.04
Date: April 15
Consensus Estimate: $0.05
Analysts, Strong Buy: 4
Analysts, Moderate Buy: 8
Analysts, Hold: 3
Earthlink (NASDAQ: ELNK) Actual Reported: ($0.15)
Date: April 14
Consensus Estimate: ($0.22)
Analysts, Strong Buy: 3
Analysts, Moderate Buy: 4
ATHM (NASDAQ: ATHM) Actual Reported: ($0.06)
Date: April 13
Consensus Estimate: ($0.07)
Analysts, Strong Buy: 6
Analysts, Moderate Buy: 7
Analysts, Hold: 2
Infoseek (NASDAQ: SEEK) Actual Reported: ($0.39)
Date: April 13
Consensus Estimate: ($0.40)
Analysts, Strong Buy: 4
Analysts, Moderate Buy: 1
Analysts, Hold: 5
broadcast.com (NASDAQ: BCST) Actual Reported: ($0.11)
Date: April 12
Consensus Estimate: ($0.12)
Analysts, Strong Buy: 2
Analysts, Moderate Buy: 3
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***UPGRADES, DOWNGRADES & COVERAGE INITIATED***
----------------------------------------------------------------------------UPGRADES
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Amazon.com (NASDAQ: AMZN) From BUY to TOP PICK
Date: April 16 Brokerage: DLJ
PSINet (NASDAQ: PSIX) From SPECULATIVE BUY to BUY
Date: April 15 Brokerage: Friedman Billings
Earthlink (NASDAQ: ELNK) From IT OUTERFORM to IT MARKET
PERFORM
Date: April 15 Brokerage: EVEREN Securities
Verio (NASDAQ: VRIO) From BUY to TOP PICK
Date: April 14 Brokerage: DLJ
DOWNGRADES
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ONSALE (NASDAQ: ONSL) From IT MKT PERFORM to IT MKT
UNDERPERFORM
Date: April 16 Brokerage: EVEREN Securities
ONSALE (NASDAQ: ONSL) From BUY to MARKET PERFORM
Date: April 16 Brokerage: Hambrecht & Quist
ONSALE (NASDAQ: ONSL) From BUY to HOLD
Date: April 16 Brokerage: Needham & Co.
ONSALE (NASDAQ: ONSL) From BUY to MKT PERFORM
Date: April 16 Brokerage: Pacific Crest
ONSALE (NASDAQ: ONSL) From ACCUMULATE to NEUTRAL
Date: April 16 Brokerage: Raymond James
Infoseek (NASDAQ: SEEK) From STRONG BUY to BUY
Date: April 14 Brokerage: BT Alex Brown
NEW COVERAGE INITIATED
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Beyond.com (NASDAQ: BYND) BUY
Date: April 15 Brokerage: BB Robertson Stephens
Verio (NASDAQ: VRIO) STRONG BUY
Date: April 15 Brokerage: Pacific Crest
InfoSpace (NASDAQ: INSP) BUY
Date: April 14 Brokerage: Pacific Crest
XOOM.com (NASDAQ: XMCM) BUY
Date: April 14 Brokerage: BB Robertson Stephens
America Online (NYSE: AOL) BUY
Date: April 13 Brokerage: FAC/Equities First
Albany
Earthlink (NASDAQ: ELNK) BUY
Date: April 13 Brokerage: FAC/Equities First
Albany
CheapTickets (NASDAQ: CTIX) BUY
Date: April 13 Brokerage: Dain Rauscher
FlashNet Comm. (NASDAQ: FLAS) IT OUTPERFORM
Date: April 13 Brokerage: EVEREN Securities
iVillage (NASDAQ: IVIL) MARKET OUTPERFORM
Date: April 13 Brokerage: Goldman Sachs
iVillage (NASDAQ: IVIL) BUY
Date: April 13 Brokerage: Hambrecht & Quist
Verio (NASDAQ: VRIO) STRONG BUY
Date: April 13 Brokerage: Preferred Capital
Markets
iVillage (NASDAQ: IVIL) HOLD
Date: April 13 Brokerage: CS First Boston
Vignette(NASDAQ: VIGN) STRONG BUY
Date: April 13 Brokerage: CE Unterberg Towbin
FlashNet Comm.(NASDAQ: FLAS) BUY
Date: April 12 Brokerage: JC Bradford
FlashNet Comm.(NASDAQ: FLAS) BUY
Date: April 12 Brokerage: BB Robertson Stephens
FlashNet Comm.(NASDAQ: FLAS) LONG TERM BUY
Date: April 12 Brokerage: Ladenburg Thalmann
America Online (NYSE: AOL) BUY
Date: April 12 Brokerage: Soundview
Multex.com (NASDAQ: MLTX) BUY
Date: April 12 Brokerage: CIBC Oppenheimer
Multex.com (NASDAQ: MLTX) BUY
Date: April 12 Brokerage: Dain Rauscher
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***QUOTE OF THE WEEK***
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"It's a great way for them to increase their exposure to the Internet. Like
other broadcasters, CBS has a very valuable asset - the ability to deliver
a wide number of viewers. It's a low-risk way for CBS to become a major
player on the Internet.''
-- Comments made this week by Paul Sweeney, broadcasting analyst with
Salomon Smith Barney, regarding news that CBS would take minority stakes in
Web sites hollywood.com and storeRunner in exchange for providing $200
million worth of advertising for both sites. |
