GOTO fair market value should be $2.50 per share not $50..Read why...
Don't get me wrong...I'm long 100 GOTO from the IPO price (through DLJdirect) so admittedly I'm posting the following tongue in cheek...
Bottom Line, though, is that GOTO at $50 a share is currently EXTREMELY FANTASTICALLY OVERVALUED at least by a factor of 20x! YES, you're reading correctly..20X.
Why? Because CMGI just paid $2.7 billion for Alta Vista which has annual revenues of $165 million. That's a price to sales ratio of about 16X. At $50, GOTO's market cap (44mm shares times $50) is about $2.2 billion. GOTO's annual sales are just $6 million compared to Alta Vista's $165 million. GOTO's price:sales ratio is 366X or more than 20X greater than Alta Vista's 16:1 ratio!!!
I wish it wasn't so (since I'm a GOTO shareholder), but you longs have to face realities here. GOTO should be trading at 1/20 (one-twentieth) of $50, in other words, at $2.50 a share, if a knowledgable buyer, such as CMGI, was paying the current comparable price per share for it today! Read more below...
Valuing Portals in the Real
World
By David Simons
What is a portal really worth? CMGI's
acquisition of Compaq's
AltaVista has provided an important
benchmark.
CMGI CEO David Wetherell said that total
revenues for AltaVista, Shopping.com, and
Zip2 are at a rate of around $165 million
annually. That's 18 percent more than Lycos
(LCOS) and 40 percent more than
Infoseek (SEEK)
Wetherell also said that the AltaVista portal
per se is profitable, but did not disclose
figures. Details eventually will be reported in
CMGI and Compaq SEC filings.
The $2.3 billion CMGI is paying for 83
percent of AltaVista values the company at
$2.7 billion. That is 16 times the run rate
sales of $165 million.
By contrast (based on first-quarter earnings
reports):
Lycos (LCOS) trades at 29 times
annualized sales of $140 million.
Infoseek (SEEK) trades at 24 times
annualized sales of $118 million.
Go2Net (GNET) trades at 40 times
annualized sales of $17 million.
Yahoo (YHOO) (YHOO) trades at 112
times annualized sales of $344 million.
And Goto.com (GOTO) trades at an
incredible 179 times annualized sales
of just $6 million.
CMGI is widely regarded as very smart money. Its AltaVista deal says
that the stock market is overvaluing other portals.
Compaq's massive problems with its PC business might suggest a fire
sale. However, many companies would have liked to have acquired
AltaVista, so CMGI's deal represents fair value.
Indeed, historically, the ultimate arbiter of business value has been
the prices at which enterprises actually change hands. The stock
market merely is paper-trading proxy and usually values companies at
a discount to what they would fetch in acquisitions. But portal stocks
now are the reverse.
In place of real-world benchmarks are discounted cash-flow models
composed in a world of imagination. And even those lofty measures
can be inflated by the fevered demand for Web stocks.
Goto.com's June 18 IPO was offered at a price-to-sales multiple equal
to Yahoo's 112, despite March quarter losses of $7.4 million on puny
$1.5 million revenues. However, at the $15 offering price, Goto.com's
market capitalization was an ominous $666 million.
That doesn't mean that indicators of fair value have lost their
gravitational pull. But the more distant the orbit of stocks, the longer
it takes - unless an asteroid intervenes. In last October's market
mayhem, Lycos and others traded down to price-to-sales ratios
between 8 and 10.
Source:
thestandard.net |
