BancBoston Robertson Stephens 69
NET PERCEPTIONS, INC.
Lowell J. Singer (415) 676-2769
Rating: Buy Keith E. Benjamin, CFA (415) 693-3285
Change in . . . Yes/No Was Is
EPS 1998: Actual $(0.35) FY December 1998 1999 E 2000 E
EPS 1999E: No $(0.62) EPS: 1Q $(0.07) $(0.19) A $(0.09)
EPS 2000E: No $(0.35) 2Q $(0.07) $(0.18) $(0.09)
3Q $(0.08) $(0.14) $(0.07)
52-Week Range: $35-15 4Q $(0.13) $(0.13) $(0.09)
FD Shares Outstanding (MM): 21.5 Year $(0.35) $(0.62) $(0.35)
Market Cap (MM): $459.6 P/E — NM NM
Average Daily Volume (000): 100
3/99 Book Value/Share: $1.93 Revs (MM): 1998 1999 E 2000 E
3/99 Total Debt/Total Cap: 1% 1Q $0.7 $1.9 A $4.3
1998E ROAE: NM 2Q $1.0 $2.0 $4.8
Price/Book Value: 11.1x 3Q $1.2 $3.0 $5.5
Net Cash/Share: $1.88 4Q $1.7 $3.7 $5.5
Dividend/Yield: NM Year $4.5 $10.6 $20.0
3-Year Secular Growth Rate: 50% Mkt Cap/Rev — 43.5x 23.0x
Investment Highlights
· Several online companies like NetGravity, DoubleClick, MatchLogic and Engage and traditional
offline marketers like Abacus Direct, are focused on collecting consumer data. Net Perceptions
has proprietary, leading technology to turn that data into useful recommendations. Looking out
a year or more, we believe rapid customer growth and new products will prove our future
estimates very conservative.
· Net Perceptions added 17 new customers during Q1, including two enterprise solutions
customers that will use Net Perceptions for both eCommerce and call centers products. We are
still not estimating any call center revenues until the second half of 1999, but believe we might
see a small amount in Q2 based on these customer additions. In addition, the company entered
into product distribution agreements with three new partners—Futurelink Distribution
Corporation, Media Serve and Net Force. Eight new sites went online during Q1, including
SkyMall and ShopNow.com, bringing the total to 22.
· We believe there is upside to the June quarter, based on new customer growth. We recently raised
our Q2 revenue estimates from $1.8 million to $2.0 million and believe there is additional
upside to our remaining estimates for 1999. We continue to expect new products to grow
quickly, starting with the call center product and direct e-mail product. We expect that revenue
growth can also be accelerated as existing customers use the eCommerce product more, due to
the volume-based pricing component of most contracts. We believe a greater number of future
sales could involve multiple products, increasing revenue per customer, as evidenced by the 70 BancBoston Robertson Stephens
company's two new enterprise customers who will buy Net Perceptions for both eCommerce and
call centers products. Net Perceptions will report Q2 earnings on July 15.
The Company
Net Perceptions, headquartered in Minneapolis, Minnesota, is a leading provider of marketing
solutions that enable Internet retailers to market to customers on a personalized one-to-one basis in
real time. With the company's software solutions, a retailer learns from each customer interaction
and, based on the information received, adjusts marketing messages and product offerings to that
customer in real time. We believe the company will leverage this core technology into several
products focused on personalization, both online and offline.
Investment Thesis
The traditional direct marketing industry, including telemarketing, direct mail, direct response
television and other techniques are $163 billion. The Internet is a compelling medium for many of
these functions given its extremely low distribution costs and ability to help marketers use data to
target offerings. We believe Net Perceptions is a leader in making direct marketing customer
databases more valuable, helping merchants personalize marketing messages. We believe that as Net
Perceptions helps customers cross sell and up sell consumers, the company will be able to capture a
significant portion of the value it creates, providing upside to our estimates.
Investment Risks
A widespread reduction in Internet stock valuations could adversely affect the stock price. Net
Perceptions' tracking of Web behavior could cause concern among privacy advocates, although we
believe the company's targeted offers are at worst no more intrusive than traditional direct mail. Net
Perceptions serves many large eTailers, which could decide to try and replicate Net Perceptions
services (using an in-house solution), but we believe Net Perceptions technology creates significant
value for its customers, minimizing that risk for most. |
