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July 12, 1999
Dow Jones Newswires
SMARTMONEY.COM: Portal? We Don' Need No Stinkin' Portal
By JOSHUA ALBERTSON
Smartmoney.com
This story was originally published Friday.
NEW YORK -- Maybe Barry Diller, the mogul who couldn't buy the Internet, doesn't need Lycos (LCOS) after all. Maybe he's got a hotter Web property in his portfolio in Ticketmaster Online-CitySearch (TMCS).
It's a mouthful, but as it enters its third full quarter as a public entity, Ticketmaster Online-CitySearch is making investors smile again. The stock has awakened from its post-IPO slumber, climbing 50% during the last 10 trading sessions. And in the wake of the failed Lycos deal, TMCS Chief Executive Charles Conn is wondering why his company, which is majority-owned by Diller's USA Networks (USAI), can't be the centerpiece of an Internet empire.
"A year from now we'll wonder why we spilled so much ink over national Web portals," Conn says.
It's hard to picture, given Yahoo's smashing second quarter and the recent resuscitation of the remaining big portal stocks. Lycos, which slipped out of Diller's hands in May, is up more than 50% since the middle of June. But Conn sees the shift beginning, even within the walls of his parent company. "The tone I hear is maybe we didn't need to do a portal deal," he says.
Like all good real estate (or is that virtual real estate?) men, Conn believes the World Wide Web is about three things: location, location and location. But it's less and less about putting the same Web site in every location, from the Upper Peninsula of Michigan to the Baja Peninsula of California. Web usage, as Conn sees it, is turning into a local phenomenon. "I think the early analogies for the Web were navigation and searching and discovery," Conn says. "Now, what we find is that [users] are looking for practical guides for living."
For Ticketmaster Online-CitySearch, that translates into a network of strategically located city guides that offer local content, commerce and (less significantly) community. The sites are already in 33 cities - 28 in the U.S. and 5 abroad - and analysts expect the number to top 40 by the end of the year. According to Media Metrix's survey of Web traffic, CitySearch trails only Microsoft's (MSFT) Sidewalk and America Online's (AOL) Digital City among city sites.
But it's the commerce angle that is especially intriguing for analysts, and the company has obliged of late by bolstering its ability to facilitate transactions. Most important, every city-guide site is now equipped to sell tickets directly through Ticketmaster. That led to a 320% year-over-year rise in revenue from ticketing in the first quarter; in March, 10% of all Ticketmaster sales were made online. "It's such a natural for a city guide," Conn says. "When your kids want to see 'Barney On Ice,' we can facilitate the transaction."
In addition, more than 15,000 local merchants have enlisted CitySearch to promote their Web sites, which are housed on the appropriate city guides. A growing number of these merchants are also selling their wares on the Web through a new program called CitySearch Commerce. Internet users in Manhattan who want to buy flowers can link directly from the New York City Guide to the Starbright Floral Designs site and buy online. TMCS extracts a monthly fee for its services.
"It has been much, much more successful in the early going than I would have imagined," says Nick Saitos, a Starbright owner, who estimates he has gotten about 10 orders a day from the Web since teaming with CitySearch Commerce three months ago. TMCS hopes that a recent pact with American Express, in which AmEx will market the Web-hosting services to its small- and medium-sized business customers, will help add to the list of CitySearch merchants.
And then there are the recent purchases of Match.com (from Cendant (CD)) and One & Only Network, two online dating services with a combined database of 3 million registered users. Match.com claims to be responsible for more than 650 marriages - and it's profitable. (Boy, is there anything the Internet can't do?)
Throw in an agreement with CareerBuilder (CBDR) to provide local job listings; a link with Sci Fi Channel (a division of USA Networks) to auction memorabilia through CityAuction, the company's answer to eBay (EBAY); and some deals to book hotel reservations online and it appears that TMCS is indeed positioning itself to be a centerpiece. And as it fights for city-site supremacy, CitySearch has an e-commerce channel in Ticketmaster that neither Digital City nor Sidewalk can match. Last quarter, 59% of the company's revenue came from ticketing and another 35% came from the city guides. Only 6% came from advertising and sponsorships. Those are encouraging numbers for those who believe commerce will rule the Web.
But not everybody's convinced. Portals still top the traffic charts, and some pundits don't think TMCS can grow enough without one. Even a post-failed-merger agreement with Lycos to be the portal's featured provider of city-guide content doesn't seem to be enough to ease those concerns. "I think they're fairly well-poised [to capture local commerce revenue]," says Aram Sinnreich, an analyst with Jupiter Communications. "I think what they're lacking is a portal component."
Conn counters that the distribution deal was the main thing he wanted from Lycos anyway, that the portal will ultimately fade and that eyeballs will look elsewhere on the Web. In any event, there aren?t many likely allies left out there for TMCS. Lycos and Yahoo! (YHOO) are the only remaining major portals without a partner.
And investors seem convinced that the link with USA is enough for now. As a home shopping pioneer, Diller wrote the book on direct-selling and distribution. Plus, as the Sci Fi deal implies, USA's entertainment offerings will likely add some juice. Diller's capital can't hurt either.
The stock's recent run has the accompanying trading volume to suggest that the resurgence is for real. It doesn't hurt that Wall Street analysts are pounding the table. In a recent report, Keith Benjamin of BancBoston Robertson Stephens labeled TMCS as one of "a few stocks that stand out as ripe for positive attention over the next few weeks."
Of course, all of the standard Internet stock warnings still apply. Revenue is on the rise, but still only totaled $27.9 million in 1998. Earnings don't exist yet and probably won't for a few years. "We think it's something that's really important to strive for," Conn says (there's a radical idea). "But we don't expect to have near-term profitability." And the stock's market value, although well below its winter heights, is still almost 100 times last year's revenue.
But on the valuation chain, TMCS at 34 is a far cry from TMCS at 80 1/2 (its peak in December). And as Web experts ponder the uncertain fate of Internet advertising, Conn has advanced a strategy by which commerce is driving triple-digit revenue growth. Maybe he's right. Maybe Barry Diller can stop looking for that portal now. For more information and analysis of companies and mutual funds, visit SmartMoney.com at smartmoney.com
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