DTHK - research notes from Thursday
DigitalThink (DTHK): Launching e-Learning Pilot With McDonalds; Buy --
02:36pm EDT 19-Jul-01 USBancorp Piper (Mark A. Marostica 612-303-5572) DTHK
U.S. Bancorp Piper Jaffray www.gotoanalysts.com
DigitalThink, Inc. (DTHK -14.77) July 19, 2001
Mark Marostica, 612-303-5572, mmarostica@pjc.com / Robert D. Brown, 612-303-
2204, rbrown@pjc.com
Company To Launch e-Learning Pilot With McDonald's; Maintain Buy Rating And
$16 Price Target
Rating: Buy, Aggressive (#)
Price: $14.77 52-Week Range $60 - $5.34
FY End: March 12-Month Price Target
(6.1x Prelim. CY02 Rev. Est.) $16
Shares Out (Mil) 35.1
EPS 2001 2002E 2003E Market Cap (Mil) $518.4
Jun ($0.18) ($0.11)A NA Average Daily Volume 704,810
Sep ($0.17) ($0.11)E NA Book Value $2.42
Dec ($0.17) ($0.06)E NA Dividend Nil
Mar ($0.14) ($0.01)E NA Debt/Total Cap NM
FY ($0.66) ($0.30)E $0.20
FY P/E NM NM 73.9x
CY ($0.43)E ($0.46)E NA Calendar 2001 Revenue Multiple8.9x
CY P/E NM NM NA Calendar 2002 Revenue Multiple 5.9x
Revs ($Mil)2001 2002E 2003E
Jun $6.2 $15.0A NA
Sep $8.8 $14.4E NA
Dec $10.8 $16.2E NA
Mar $12.8 $18.1E NA Qtr End September 30, 2001
FY $38.7 $63.8E $93.2 Est Rep Date October 2001
CY $58.5E $88.1E NA
Highlights
--DigitalThink announced today, July 19, that it will work with McDonald's
Corporation (#) to launch an e-learning pilot to provide training to
McDonald's employees on orientation and instruction on McDonald's standards
of quality, service, cleanliness, hospitality, restaurant operation, and
food safety.
--Financial terms of the deal were not disclosed.
--We are not making any changes to our model.
--We like this deal for three reasons. First, we believe McDonald's
selection of DigitalThink for its first foray into e-learning, demonstrates
the quality of DigitalThink's solution. Second, recognizing that this is a
pilot program, we believe there will be follow-on opportunities to expand
the relationship with McDonald's. Third, this announcement underscores the
popularity of e-learning as a viable training mechanism. We believe
DigitalThink is well positioned to benefit from the rapid growth of the
corporate e-learning market, which is expected to reach $11.3 billion by
2003, representing a CAGR of 71% between 2000 and 2003.
--We maintain our Buy rating and $16 price target on shares of DTHK (6.1x
preliminary CY02 revenue estimate of $88.1 million).
Additional Information
The Deal - DigitalThink announced today, July 19, 2001, that it will work
with McDonald's Corporation to launch an e-learning pilot to provide
training to McDonald's employees on orientation and instruction on
McDonald's standards of quality, service, cleanliness, hospitality,
restaurant operation, and food safety. McDonald's pilot will involve
employees in several countries and will be delivered in five languages. We
believe DigitalThink will provide e-learning development services based on
McDonald's proprietary content. Like all DigitalThink content, the e-
learning content will be entirely Web based.
Why We Like This Announcement - We like this deal for three reasons. First,
we believe McDonald's selection of DigitalThink for its first foray into e-
learning, demonstrates the quality of DigitalThink's solution. Second,
recognizing that this is a pilot program, we believe there will be follow-
on opportunities to expand the relationship with McDonald's. Third, this
announcement underscores the popularity of e-learning as a viable training
mechanism. We believe DigitalThink is well positioned to benefit from the
rapid growth of the corporate e-learning market, which is expected to reach
$11.3 billion by 2003, representing a CAGR of 71% between 2000 and 2003.
Conclusion And Valuation - We reiterate our Buy rating and $16 price target
on shares of DigitalThink. With its end-to-end Web-based e-learning
platform solution, strong management team, highly scalable business model,
stellar lineup of partners, well-capitalized balance sheet, and solid
customer base, we believe DigitalThink is a compelling and unique e-
learning play. We believe the Company will continue to benefit from the
huge corporate training market opportunity together with the rapidly
growing e-learning market; the ubiquity of the Web; and the growing desire
for corporations to deploy e-business solutions, which ultimately create
real value in their organizations. Shares of DTHK are currently trading at
9.2 times our calendar 2002 revenue estimate of $58.5 million, above our
comparable group, which is trading at an average calendar 2001 revenue
multiple of 6.0x. Our $16 price target assumes that, one year from now,
shares of DTHK will trade at 6.4x our preliminary calendar 2002 revenue
estimate of $88.1 million. |
