From the Street.com
True Value
By Adam Lashinsky
Silicon Valley Columnist
7/7/99 7:00 AM ET
There are precisely two ways to explain the gap between
the stratospheric valuation of a Net-stock wonder and the
merely rich valuation of a successful competitor: Either
the upstart is hideously overvalued, or the established
player is grossly undervalued.
Just for argument's sake, then, let's agree that E-Loan
(EELN:Nasdaq), the recently public online-mortgage
broker that will shortly report second-quarter revenue flat
or down from the previous quarter, isn't really worth $2.4
billion. The better question for the time being is whether
Intuit (INTU:Nasdaq), E-Loan's far larger competitor, is
worth only $5.6 billion.
Consider how Intuit's pieces might be valued if it were an
Internet start-up. Its QuickenMortgage business alone,
with $400 million in first-quarter loan originations (compare
with E-Loan's $480 million) ought to be worth about the
same as the entire Dublin, Calif., start-up. This is
especially so because Intuit relies less heavily on
mortgage refinancings, an area that has slowed
dramatically as interest rates edge up. It's also because
Intuit's sales are more evenly spread out geographically,
leaving it less vulnerable to a slowdown in a regional
economy. So now the rest of Intuit would be worth $3.2
billion.
Now factor in the potential value of Intuit's burgeoning
insurance-quote referral Web site, InsureMarket. The
newest proxy for that business is Internet start-up InsWeb
of Redwood City, Calif., which is in the final stages of its
IPO process. At the maximum proposed price of $13 a
share, investment banker Goldman Sachs is valuing tiny
InsWeb at $419 million. InsWeb's annualized revenue,
based on the first quarter, is $12 million. Let's make the
not-over-the-top assumption that InsWeb's IPO slightly
more than doubles, giving it a valuation of a cool $1 billion.
That values the rest of Mountain View, Calif.-based Intuit,
which has more than $800 million in annualized sales, at
$2.2 billion.
Now for the fun part. As of April 30, Intuit had $1.8 billion
in cash, short-term investments and marketable
securities. Some of the latter, through ownership of stock
in Excite@Home (ATHM:Nasdaq) and CheckFree
Holdings (CKFR:Nasdaq), has since been sold. But you
don't need an HP 12-C financial calculator to know the
market isn't exactly awarding Net-style valuations to the
rest of Intuit's business, a profitable tax-preparation and
personal-finance software operation. And never mind that
the mortgage, insurance and other financial-services
components to Intuit's business just might provide some
operating synergies to the one company that controls
them.
"I would argue that the businesses go well together,"
deadpans Intuit fan Lise Buyer, Internet analyst with
Credit Suisse First Boston in Palo Alto, Calif. Among the
many reasons Buyer finds being an Intuit supporter
profitable is that her employer rakes in hefty fees
supplying investment-banking services to Intuit. Her firm,
for example, handled the recent sale of a large chunk of
Excite@Home stock, which Intuit had acquired as part of
a strategic investment in Excite. But Buyer's got decent
credibility on Intuit. In April she removed a coveted
strong-buy recommendation from the stock and replaced it
with a buy, her current rating.
She says she's stingy about strong buys, saving those for
stocks she thinks clients should "drop everything" to go
purchase. Still, "Intuit has been my single favorite call,"
says Buyer, even though she warns that Intuit's fiscal
quarter ending this month will compare unfavorably to last
year's July quarter because of the pop from a product
introduction a year ago.
But the success of Net "pure plays" -- companies that are
in only one business, making simpler the task of
analyzing their values -- should only make Intuit's overall
potential stand out in starker contrast.
"The huge success of the E-Loan offering makes it
apparent that there is tremendous value there," she says.
Or, of course, the bidding up in value of a first mover as a
proxy for the entire online financial-services sector simply
is further proof that things have gotten way out of hand.
Adam Lashinsky's column appears Mondays,
Wednesdays and Fridays. In keeping with TSC's editorial
policy, he doesn't own or short individual stocks, although
he owns stock in TheStreet.com. He also doesn't invest in
hedge funds or other private investment partnerships. |
