BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
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July 23, 1999
The Web Report - Volume 2, Issue #29
This week, the NETDEX index decreased 10.5% from last week
to 559.56. For comparison, the NASDAQ ended the week down
5.5% from last week.
REPORTING SEASON PEAKS - The majority of our companies have
now reported, with better-than-expected results from almost
every one. Still, the stocks feel heavy, in anticipation of
a slow August. There may be some room for a few stocks to
move up over the next week or so, in the wake of remaining
reports, particularly, we believe, for those stocks that
have languished after recent IPOs, including Mapquest,
Student Advantage and Value America. Looking to August, we
expect investors will be trying to guess whether or not to
buy at the beginning or end of the month. In our view, it
has been better to be a bit early, as most moves in the
group have tended to be sharp. We expect AOL to be among
the first to recover, helped by a renewed appreciation of
its strategic progress. For stocks like Amazon.com, we
expect investors may wait a bit longer into September to see
a jump-up in shopping spending.
STRONG SECULAR TRENDS THROUGH SUMMER - We are seeing a
continuation of the secular trend of more people accessing
the Web, spending more time, and spending more money
shopping. According to Media Metrix, 62.7M individual users
accessed the Web from home or work in June, up 1.3% from
61.9M in May. The average Web user accessed the Internet 12
days in June, down slightly from 12.2 in May. The average
user spent an average of 38.3 minutes per usage day in June,
which was up slightly from 37.3 minutes in May. Overall,
the average user spent 7.7 hours online in June, up slightly
from 7.6 hours in May. Online Shopping growth outpaced
overall Web usage growth in June, with unique visits to
Shopping sites increasing by 3.8% to 41.8 million unique
users versus overall unique visitor growth of 1.2% to 62.7
million unique users. Amazon's reach increased 17.8% to
approximately 11.2 million unique visitors.
AMERICA ONLINE - June-quarter results met the high end of
our range of expectations. Commerce helped bring revenues
to $1.38 billion over our estimate of $1.35 billion. EPS of
$0.13 beat our $0.10 estimate. Member growth was in line
with our estimate. The tone of the conference call was more
positive than we've heard in some time, particularly
regarding trends in subscriber growth. We are raising our
estimate for F2000 (June) total AOL members from 21.1
million to 22.5 million. Ad /Commerce backlog grew to $1.5
billion in the quarter. AOL announced a DSL deal with
Ameritech, bringing total DSL deals to 3, covering 55% of
the U.S. and 60% of AOL members, strengthening its broadband
position. We are raising EPS estimates and believe there is
further upside. We believe AOL has become a communications
hub that will prove more critical in the emerging world of
multiple devices connecting us through the Web. Over the
next few months, we expect investors to wake up to the power
of AOL's position. As such, we believe now is the time to
grow more aggressive again on accumulating the stock.
EXCITE @ HOME - Revenues and marketing expenses continued to
rise. @Home achieved 3.6% penetration of upgraded homes
passed, to end the quarter at 620,000, ahead of our estimate
of 600,000. The @Home service launched in 21 new markets in
the quarter for a total of 89 markets penetrated. Excite
showed very strong performance in the quarter. While
average daily page views grew a seasonally modest 5% in Q2
to 81 million, registered users grew 36% to 38 million.
Excite has proven quite effective enticing viewers to
personalize the service and register for various features.
The challenge is for @Home to step up the pace of
installations, as its principal competitor, AOL, added more
subscribers in the quarter than @Home's cumulative list.
Still, its cable relationships and technology hold
significant value, in our view. Short term, we believe ATHM
stock could be volatile as investors over-react to open
access developments, either positive or negative. We
continue to believe the open cable access issue is more a
matter of perception than reality, and do not expect any
definitive developments any time soon, particularly given
the FCC's stance on avoiding the issue. Longer term, we
believe it will grow into its valuation through internal
progress, possibly in partnership with AOL and others.
STAMPS.COM - We initiated coverage this week with a Buy
rating. We believe Stamps.com will become the leading
Internet postage solution by offering a convenient,
cost-effective service for purchasing postage over the
Internet. The company's software solution was the first to
be approved by the U.S. Postal Service for beta testing, and
is expected to launch to 10,000 initial customers in
September 1999. We believe Stamps can capture a significant
portion of the $58 billion U.S. postage market, particularly
from SOHOs and other small businesses, but also from
corporate and consumer customers over the longer term. We
believe any truly competitive product is at least a year
away from coming to market and expect that is enough in
"Internet time" for Stamps.com to build a formidable lead.
In addition, we believe Stamps' technology offers open-ended
opportunities in providing secure online transactions, such
as airline or event tickets. Our model assumes Stamps.com
reaches an average of 1.7 million customers in F2002,
resulting in revenues of $105 million and EPS of $.05. We
believe these numbers are very conservative. From there,
additional customers will become highly profitable. We
believe Stamps.com has an attractive business model with a
predictable, recurring revenue stream and inherently high
margins, which will help its stock to grow into, and past,
its $2 billion valuation.
STUDENT ADVANTAGE - Student Advantage and Lycos signed a key
agreement, under which the companies plan to launch a
co-branded College Web Guide, sometime this fall. Student
Advantage issued Lycos a warrant for the purchase of an
undisclosed amount of STAD common stock. We expect more
details of this payment when the comopany reports next
Wednesday, July 28. The partnership gives Student Advantage
access to Lycos' user base of over 30 million unique users.
We believe Student Advantage is building lifetime brand
loyalties with an extremely attractive demographic to which
it can continue to market, even after college. We believe
there is upside to our model from expanding the membership
base, increasing the revenue generated per member and
possible strategic acquisitions.
DIGITAL RIVER - Company pace is accelerating. Revenues of
$15.8 million compared very favorably to our estimate of
$14.1 million. Q2 sales benefited from more customers, more
volume per customer and incremental revenues from the
company's shareware business. Gross margins of 18.9%,
versus our estimate of 17.0%, and 16.3% in Q1, reflected
strong results in the company's shareware business. We
believe there is significant value to Digital River's
technology and believe we could see upside from other
applications of this technology in the near future. We
believe Digital River is creating one of the larger
eBusiness franchises.
DOUBLE CLICK - Revenues are ramping along with expenses. We
expect that during 2H 1999 the company will focus on closing
and integrating the Abacus Direct and NetGravity
acquisitions but could pursue smaller, incremental
acquisitions. NETGRAVITY reported Q2 revenue in line with
our estimates. The company added 52 new customers in the
quarter, roughly split between the software and outsourcing
products. We estimate that NetGravity gained approximately
seven customers from competitors while losing four,
resulting in a net gain of three customers. We continue to
believe that software is NETG's core strength and the key
driver of DoubleClick's proposed acquisition. Clearly, the
DoubleClick/NetGravity/Abacus Direct combination aims to be
a leader in the ad management space.
USSEARCH.COM - This week, we initiated coverage with a Buy
rating. The company is a leading provider of public record
data and information search services for individual,
corporate and professional clients. We believe a
significant market opportunity exists to make these data
easily accessible through the Web. Through significant
prime-time television advertising, USSEARCH.com has
established a track record of millions of paying customers.
While we believe the company's services are appealing to
consumers, we believe there is an even larger
business-to-business opportunity, helping human resource
departments screen employees. The company just reported
positive Q2 results. Total number of transactions in Q2 was
122,720, greater than our estimated 111,829. USSEARCH ended
Q2 with over 500 corporate accounts, adding approximately
100 new corporate accounts each month. We believe there is
considerable upside to the model from recently expanded Web
promotions, such as through Yahoo!.
NETWORK SOLUTIONS - Results were in line with estimates.
The company added 1.2 million net new Internet domain names
in Q2, bringing the total to 5.4 million net registrations.
We are impressed by the company's new CEO, Jim Rutt, and
believe he has already made a positive impact on the
negotiations with the Commerce Department and ICAAN. We
expect ICANN to resolve most of the issues by the end of
this three-week test bed extension, or August 6. We believe
this will leave NSOL in a position to continue taking
advantage of its marketing lead. The Commerce Department
wrote a letter to ICANN indicating that ICANN had
overstepped its bounds and encouraging ICANN to sign a
contract with NSOL. The Commerce Department questioned
NSOL's ability to act unilaterally and its right to maintain
control of the database regardless of an agreement with
ICANN. We believe NSOL's negotiating position is stronger
than perceived, especially considering the original contract
signed with the Commerce Department, which can be viewed as
potentially perennial.
SPORTSLINE GAINS MARKET SHARE - SportsLine reported another
strong quarter, ahead of expectations. Q2 revenues of $13.0
million were ahead of our $12.3 million estimate. Traffic
grew to 8.4 million average daily page views, and reach
according to Media Metrix grew to 5.9% in June, an increase
in reach of 11% compared with a nearly flat month for ESPN
and a 13% decrease for CNN/SI. We expect similar upside in
the back half of the year as we look to baseball's World
Series and the start of the NFL season.
MAPQUEST - Mapquest reported strong Q2 results, with
revenues of $7.4 million above our estimate of $6.6 million.
Internet-related revenues grew to $4.0 M, up 150% from
Q2:98, representing 53% of total revenues, versus 49% last
quarter. The company added 105 new business customers,
increasing to 561 from 456 last quarter. Average revenue
per business customer was $4,900 compared to our estimate of
$4,100, as mapping page views at affiliated consumer Web
sites exceeded expectations. Mapquest launched its service
for the Palm Pilot in May. We believe there is considerable
upside to our estimates. We find the stock attractive at
current levels, relative to the size of the opportunity it
faces to map-enable the Web, serving both consumers and
businesses.
eTailing Update - Lauren Cooks Levitan 415-693-3309 -
lauren@rsco.com
AMAZON APPEARS STUCK SHORT TERM WHILE E-TAIL LEADER GETS
READY FOR BIG JUMP- We may need to wait a bit longer for the
holiday season to boost the stock. Others may look at
losses as a sign of a flawed business model, but we see
current investments as dramatically adding value that will
materialize in a leading, sustainable and profitable
business long term. Amazon reported moderate Q2 sequential
revenue growth of 7% to $314 MM, ahead of our estimate and
reported EPS in line with our estimated loss of $0.51. The
company also announced a 2-for-1 stock split with an
effective trading date of September 2. We expect some
investors may be growing impatient with the company's policy
of minimal disclosure. However, we appreciate the company's
desire to develop plans without the light of competitive
glare shining on it. We are satisfied with the big number
of 10.7 million customers, which remains the root of the
company's power, in our view. While we do anticipate
extended volatility and pressure on the stock as we await
more evidence in terms of revenue growth and eventually
margin improvements, we expect Amazon to win a
disproportionate share of consumer and investor enthusiasm
during the upcoming holiday season.
BEYOND SOFTWARE - Beyond.com reported strong Q2 results,
highlighting progress as the leading software eTailer.
Recent upgrades to its Web site, including a "Downloading
for Dummies" process with audio prompts to guide customers
through the downloading process, differentiate the site
while encouraging sales of digitally-downloadable products.
The company also recently announced a relationship with
pcOrder that should greatly enhance the site's content.
Agreements with the federal government, Symantec, and
Hewlett-Packard, among others, should also provide Beyond
with the direct benefit of a broadened customer base, and
the indirect benefit of increased validation of its
business. Additionally, we believe Beyond's award-winning
"Naked Man" ads have made it one of the most recognized
eTailing brands. We continue to like the stock given its
leadership position in a large, Web-appropriate category.
WHERE IS THE TRAVEL IN PREVIEW TRAVEL? - We changed our
rating on Preview from a Buy to a Long-Term Attractive after
the company reported Q2 gross bookings and transaction
revenues below our estimates for the second consecutive
quarter. While total revenues and EPS showed some upside
from better-than-expected advertising revenues and gross
margin, we are troubled by the trends in Preview's core
travel business. We see modest downside risk in the shares
given the intrinsic value of Preview's content and large
number of customer profiles, which we continue to believe
could prove attractive to an acquirer. However, we fear no
deal is imminent and don't see a major fundamental stock
catalyst any time soon.
MICROSOFT UPDATE - www.softwarestocks.com - Marshall Senk -
mailto:marshall@rsco.com
For those of you who have not yet subscribed to Marshall's
email, we would encourage you to go to his site,
www.softwarestocks.com to register. His comments on
developments at Microsoft follow.
Based on recent moves, we believe Microsoft is getting more
committed to launching an Internet tracking stock in order
to try and better capture the value of its online assets.
It may seem ridiculous to some that a stock trading at 21.5x
2000 revenues and a market cap around half a trillion
dollars would need to capture more value. However, it
remains difficult for Microsoft to attract senior talent
away from companies offering options with potentially higher
jumps in valuation than possible for Microsoft's stock.
Microsoft could also use a separate, richer currency for
acquisitions.
Can this stock work? The Internet is a big business for
Microsoft, with revenues of around about $750 million for
the June '99 year, up around 75%, by our estimate. Issuing
tracking shares would give Internet investors a closer look
at how pervasive the MSN properties have become,
particularly HotMail and MSNBC, both of which are category
leaders. If the tracking stock were to trade at a median
valuation among the consumer Internet names - around 30x
2000 revenues, it would derive a market cap of around $40
billion, putting Microsoft Internet at the upper end of the
Web's valuation range.
One way or another, Microsoft is a critical component to the
Web, with its operating system and browser software on
almost every PC. It has also embraced the strategic
challenge of extending that dominance to other platforms,
through cable and wireless deals. As we have seen with AOL,
there is more revenue past software from subscriptions and
commerce. However, Microsoft remains far away from the type
of relationship AOL has with its members by virtue of AOL's
branded community, content, and commerce offerings.
Microsoft may need to patch together a series of
acquisitions, housed in a separate stock, to create a
competitive, communication-based service across multiple
devices.
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Ticker Rating Price Price
7/22 7/15 1-Wk 52-Wk Chg
Chg High 52Wk
7/15 to High to
7/22 7/22
ALOY BUY $10 3/4 $12 3/4 -16% $23 1/6 -53.6%
AMZN SBUY $107 $139 4/7 -23% $221 1/4 -51.6%
AOL SBUY $110 5/8 $121 -9% $175 1/2 -37.0%
AWEB BUY $14 $15 4/7 -10% $50 -72.0%
BYND BUY $22 1/3 $28 7/8 -23% $41 1/3 -46.0%
CBDR BUY $15 1/8 $14 3/4 3% $17 3/8 -12.9%
CDNW MP $21 1/4 $22 7/8 - 7% $39 1/4 -45.9%
CMGI NR* $96 5/8 $112 1/4 -14% $165 -41.4%
CNET BUY $42 5/8 $51 7/8 -18% $79 3/4 -46.6%
DRIV BUY $26 7/8 $32 5/8 -18% $61 3/8 -56.2%
DCLK NR** $85 $101 7/8 -17% $176 -51.7%
EBAY BUY $108 4/9 $127 -15% $234 -53.7%
EGGS LTA $ 9 2/3 $11 -12% $40 1/4 -75.9%
ETYS BUY $36 3/4 $39 2/3 - 7% $85 -56.8%
ATHM NR*** $45 1/4 $47 4/7 - 5% $99 -54.3%
GMST SBUY $70 5/8 $74 1/2 - 5% $77 1/2 -8.9%
GETY BUY $18 3/4 $19 4/7 - 4% $30 1/2 -38.5%
INSP BUY $58 7/8 $54 1/4 9% $72 5/8 -18.9%
LCOS BUY $91 7/8 $104 -12% $145 3/8 -36.8%
MQST BUY $17 5/8 $19 - 7% $34 1/2 -48.9%
MMXI BUY $42 $49 -14% $56 5/8 -25.8%
MMPT BUY $21 5/8 $22 1/3 - 3% $55 1/8 -60.8%
MLTX BUY $21 $27 1/4 -23% $72 1/6 -70.8%
NETG NR** $22 7/8 $27 5/8 -17% $66 7/8 -65.8%
NETP BUY $18 4/9 $22 -16% $35 -47.3%
NSOL BUY $71 7/8 $83 -13% $153 3/4 -53.3%
NEWZ MP $ 8 $ 9 -10% $14 1/4 -43.9%
ONSL LTA $17 1/2 $20 3/8 -14% $108 -83.8%
PCLN SBUY $83 4/7 $101 1/8 -17% $165 -49.4%
PTVL BUY $19 7/8 $24 1/3 -18% $36 -44.8%
SEEK MP $40 7/8 $43 4/5 - 7% $100 -59.1%
SPLN BUY $39 $40 3/4 - 4% $59 1/4 -34.2%
STMP BUY $44 3/4 $45 3/8 - 1% $52 1/2 -14.8%
STRM BUY $46 3/4 $54 1/4 -14% $70 -33.2%
STAD BUY $11 7/8 $13 1/8 -10% $15 1/4 -22.1%
TMCS BUY $37 $34 7/8 6% $80 1/2 -54.0%
SRCH BUY $13 $14 3/4 -12% $17 3/8 -25.2%
VUSA BUY $18 3/4 $19 1/2 - 4% $74 1/4 -74.7%
XMCM BUY $44 $56 3/8 -22% $98 1/2 -55.3%
YHOO BUY $145 1/8 $154 4/9 -6% $244 -40.5%
UBET BUY $10 1/5 $12 4/7 -19% $17 7/8 -43.0%
NETDEX 559.56 624.97 -10.5% 801.41 -30.2%
KEBDEX 848.40 949.70 -10.7% 1,273.17 -33.4%
COMQ 2,684.45 2,839.37 -5.5% N/A N/A
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(1) Change based on last 12-month's performance.
Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the
shares of Alloy Online, Amazon.com, AutoWeb,BackWeb,
Beyond.com,CareerBuilder, CDNow, CMG, CNET, Digital River,
DoubleClick, eBay, Egghead, eToys,E*Trade, Excite @Home, f5
Networks, Fatbrain, Gemstar,Getty,Infoseek, InfoSpace.com,
Inktomi, ISS Group, Modem Media Poppe Tyson, Legato, Lycos,
Multex,Mapquest.com, Media Metrix, Mpath, Microsoft
Corporation, NetGravity, Net Perceptions, Network
Solutions, NewsEdge, ONSALE, Portal Software, Priceline.com,
Preview Travel,RealNetworks, Security Dynamics, SportsLine,
StarMedia, TicketMaster Online-CitySearch,Youbet.com, Value
America, VeriSign, Xoom.com and Yahoo! and has been a
managing or comanaging underwriter or has privately placed
securities of Alloy Online, AutoWeb, BackWeb, Beyond.com,
CareerBuilder, Digital River, eBay, Egghead, eToys, E*Trade,
Excite @Home, f5 networks, InfoSpace.com, Legato, ISS Group,
Modem Media Poppe Tyson, Multex, Mapquest.com, Media Metrix,
Mpath, NetGravity, Net Perceptions, Network Solutions,
ONSALE, Portal Software, Priceline.com, Preview Travel,
RealNetworks, Security Dynamics, StarMedia, SportsLine,
TicketMaster Online-CitySearch, VeriSign, Youbet.com, and
Value America within the past three years.
* BancBoston Robertson Stephens is acting as advisor in the
merger between Alta Vista and CMGI. In keeping with firm
policy,our rating on CMGI goes to No Rating.
** BancBoston Robertson Stephens is acting as advisor in the
merger between NetGravity and DoubleClick. In keeping with
firm policy,our rating on DoubleClick goes to No Rating.
*** BancBoston Robertson Stephens acted as an advisor in
Excite@Home's acquisition of iMall; in keeping with firm
policy, our rating on Excite@Home goes to No Rating
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Rating Definitions: The following are basic definitions for
our recommendation ratings.
Strong Buy - Rating for a stock, which we believe could have
significant, positive price movement near-term and/or
represents outstanding competitive and business model
potential. Therefore, we would be aggressive buyers of the
stock.
Buy - Rating for a stock, which we recommend buying, however
believe there may not be near-term news or events to move
the stock price.
Long-Term Attractive - Rating for a stock, which we believe
could have long-term value, however we would not necessarily
recommend buying.
Market Performer - Rating for a stock, which we believe will
perform at, or below, market levels.
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Unless otherwise noted, prices are as of the close July 22,
1999.
FOR ADDITIONAL INFORMATION, PLEASE CALL YOUR BANCBOSTON
ROBERTSON STEPHENS REPRESENTATIVE AT (415) 781-9700.
The information contained herein is not a complete analysis
of every material fact respecting any company, industry or
security. Although opinions and estimates expressed herein
reflect the current judgment of BancBoston Robertson
Stephens, the information upon which such opinions and
estimates are based is not necessarily updated on a regular
basis; when it is, the date of the change in estimate will
be noted. In addition, opinions and estimates are subject to
change without notice. This Report contains forward-looking
statements, which involve risks and uncertainties. Actual
results may differ significantly from the results described
in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those
discussed in "Investment Risks." BancBoston Robertson
Stephens from time to time performs corporate finance or
other services for some companies described herein and may
occasionally possess material, nonpublic information
regarding such companies. This information is not used in
the preparation of the opinions and estimates herein. While
the information contained in this Report and the opinions
contained herein are based on sources believed to be
reliable, BancBoston Robertson Stephens has not
independently verified the facts, assumptions and estimates
contained in this Report. Accordingly, no representation or
warranty, express or implied, is made as to, and no reliance
should be placed on, the fairness, accuracy, completeness or
correctness of the information and opinions contained in
this Report. BancBoston Robertson Stephens, its managing
directors, its affiliates, and/or its employees may have an
interest in the securities of the issue(s) described and may
make purchases or sales while this report is in circulation.
BancBoston Robertson Stephens International Ltd. is
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The securities discussed herein are not FDIC insured, are
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Copyright * 1999 BancBoston Robertson Stephens Inc. |
