Excellent article from Raginbull..
By: Moneyclip
Reply To: None Friday, 13 Aug 1999 at 3:34 PM EDT
Post # of 4273
Investors Digest Article 13/08/99
INVESTOR'S DIGEST OF CANADA
Issue 16 / 99
August 13, 1999
Virtual fitness firm could show real profits
With a speed remarkable even by the lightning-fast standards of the Internet, LaserMedia (LMCD-CDN, $2.82, 416-977-2001) has become one of the leading health and fitness portals.
And the Internet and software development company has attracted to its board a number of leading U.S. business and sports business entrepreneurs who are really stoking its fire.
A few months ago, the company was a floundering CD-ROM development and marketing company with a superior CD-ROM product with ineffective distribution. I had a chance to review their product, and I think it remains to this day the best health and fitness software available.
What took them (and everyone else) by surprise was the speed at which the Internet has grown and become popular. This growth, fueled by ever quicker bandwidth capability, has allowed content providers to bypass the CD-ROM medium.
Investment banker Richard Hue saw this trend, and quickly shifted the focus of the company to the Internet when he assumed leadership of LaserMedia in November of last year. He also shut down the firms computer games division, which was the source of much financial bleeding.
The release of LaserMedia's 1998 Annual Report last week reads more like a history lesson than the story of the company's evolution since fiscal year-end of December 31.
Launched in January 1999, after only two months in development, Actfit.com is now the core business activity of the company. LaserMedia recently announced it would change its name to “Actfit.com” and will soon be trading under a new symbol.
Billed as the Web's first virtual health and fitness club, Actfit.com is a commercial web site that projects revenue from e-commerce sales of proprietary and third party products, membership fees for exclusive content, as well as fees for the production and sales of advertising.
While the site is graphics intensive and requires fairly quick access speed, I think the company is right in being a little ahead of the curve on this issue, given how quickly bandwidth concerns are being addressed.
As bandwidth improves, it will become more and more of a challenge for Internet sites to have a ‘sophisticated' look that is crucial to success.
Hue's strategy for the commercial success of Actfit.com was given a boost of credibility through recent very-high profile additions to LaserMedia's Advisory Committee.
Based on market activity in the stock, as well as a number of recent private placements, it appears as though these individuals will be taking an active role in the company and using it to launch a number of Internet-related ventures. Liquidity in the stock is good, with an average of 4.5 millions shares changing hands a month during the last five months.
Actfit.com describes itself as a vertical portal. ‘Normal' portals serve everyone, and categorize Web sites as content. Vertical portals are aimed at a highly targeted market. Actfit.com is at the entry point on the Internet to a specialty network of 100 health, fitness and sports-related Web sites.
With 100 alliance sites, Actfit.com achieved two million page views within the first five months of operation.
For comparison purposes, Bid.com has 845,000 page views a month, according to 247 Media at www.247media.com.
The network is continually adding alliance sites and the company is aiming to expand the network to 500 sites with traffic of up to 15 million page views a month by year's end.
Interactive advertising refers collectively to the many different advertising products and services that have been made possible through advances in software that manages web activity and tracks visitors.
According to Merrill Lynch, total interactive advertising grew from $181 million in 1996 to $551 million in 1997, and is expected to grow at a 100-per-cent compound annual rate from $1,266 million in 1998 to $2,902 million in 2000. Although estimates vary widely of the size of this market, the growth rate is very high.
Advertisers are beginning to realize how powerful Web advertising is. This power is related to the micro-targeting, measurement, and interactive potential that advertising on the Web has.
For instance, it is possible to determine that a consumer interacted with an ad (clicked on it) and purchased a product from the advertiser's site. In the future, it is possible that the referring site will claim a commission or referral fee on each sale.
If the rate of change continues at its current pace, revenues from internet advertising and other sources of revenue could outpace even the more optimistic projections.
LaserMedia is exploring its options related to establishing a different advertising model. This would involve more of a partnership approach with smaller agencies that would ultimately result in a greater percentage of advertising revenue accruing to LaserMedia.
It would also give the company more control of what was advertised on their portal. Based on LaserMedia's proven ability to rapidly advance a business model, these revenues could be forthcoming in the near future.
An example of this kind of arrangement is LaserMedia's recently announced partnership with XR-Net Corporation. This partnership could deliver more than five million new unique visitors to Actfit.com. XRNet has agreements to deliver and manage Websites for 2,500 health clubs, with an additional 2,500 expected to be added before the end of 1999.
LaserMedia plans to ultimately have multiple sources of revenue. An example is LaserMedia's recently announced deal with bigfitness.com which will be a venture selling fitness equipment and paraphernalia online.
LaserMedia is reasonably valued relative to other pure Internet plays, given its rapidly advancing development. There are about 19 million shares outstanding. The company seems to be well on the path of its stated goal to list on NASDAQ.
With a solid management team and board and a proven ability to quickly change strategies in a rapidly changing market, LaserMedia looks like a good candidate to ride the Internet wave into profitability.
Risks mainly relate to the quick rate of change in emerging media and management's ability to achieve profitability with a nascent business model.
Stephan Katmarian, CFA, is with Rampart Securities in Toronto and specializes in small cap stocks. E-mail: katman@netcom.ca
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
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